New GM Fights for Life

The court battle over the formation of Treasury-funded Vehicle Acquisition Holdings, LLC (a.k.a. New GM) will soon be joined. On June 30, Federal Bankruptcy Judge Robert Gerber will begin to assess the range of challenges to the government’s plans. Bloomberg reveals the quadruple threat facing the General Motors “reinvention.”

First up, the car dealer’s friend, Nebraska Attorney General Jon Bruning. Bruning’s anti-trust lawsuit found favor with the AGs from Connecticut, Kentucky, Missouri, Nebraska, Maryland, Vermont, Minnesota, North Dakota, Ohio and West Virginia. Bruning argues that, well, never mind. No traction there.

Second on the list: “Retired steelworkers and engineers also objected to the sale, saying it would leave GM without funds to pay health benefits to more than 50,000 union-represented retirees and their families.” They just want in on the UAW health care deal. A payoff should sort that out in short order.

The third threat is a strange one:

Chrysler LLC sold most of its assets to a group led by Italy’s Fiat SpA in another Treasury-funded deal to create Chrysler Group. The so-called new Chrysler said it doesn’t want its right to reject contracts with GM in its own bankruptcy case impinged by GM’s request to assume at least six contracts as part of the sale.

Chrysler’s decision to assume or reject contracts ‘must be adjudicated within the context of Chrysler’s own bankruptcy case,’ the Auburn Hills, Michigan-based company said in its objection.

As far as impediments go, this one won’t. Which leaves the real bitch . . .

Groups representing individual GM bondholders and tort claimants with product liability claims also filed objections yesterday. The individual bondholder group, represented by attorneys at Patton Boggs LLP, said it represents investors holding more than $400 million in GM debt. The group said in its objection that GM and the Treasury are improperly using a rushed sale rather than a proper Chapter 11 plan to restructure the automaker.

The tort claimants also argued the sale is “an illegal sub rosa plan” that treats the UAW benefit trust far better than other unsecured GM creditors.

“The preferential treatment of the UAW VEBA Trust violates the basic principle of equality that underlies the bankruptcy code and would not be allowed under a plan of reorganization,” attorneys for the tort claimants wrote.

There’s your war, right there. The Presidential Task Force of Automobiles (PTFOA) cut a mighty generous deal with the United Auto Workers’ (UAW) health care fund.

As we reported back in May, the UAW will receive a $10 billion payment into their Voluntary Employee Beneficiary Association (VEBA) health care superfund (paying off half of GM’s unfunded obligations in one fell swoop). And a seat at the Board of Directors for the VEBA’s rep. And a $2.5 billion promissory note, paid off in three installments (2013, 2015, and 2017). And 17.5 percent of the new post-C11 GM. And stock warrants for an additional 2.5 percent of the reorganized company.

Bondholders? Not so much. The argument that the union’s more important to New GM’s future is compelling pragmatically, but legally vulnerable. As we shall see. Oh, and we’re right back in Chrysler-land, where the majority of a bankrupt automaker’s bondholders are TARP recipients. In other words, bought and paid for.