• Sunday, May 26, 2024
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Defiant small GM bondholders intend to continue challenge

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NICOLE BULLOCK

Oliver Addison Parker will board a plane from Fort Lauderdale to New York for a stay in a lower Manhattan hotel. Parker, a trial lawyer and General Motors bondholder, will attend hearings on the restructuring of the company and argue his case himself in federal bankruptcy court.
“I intend to cross-examine the witnesses and conduct a trial,” says Mr Parker, who has filed two lengthy, detailed objections to the sale of a new GM to the US government, the United Auto Workers union and bondholders.
As part of GM’s turnround, bondholders will receive 10 percent equity plus 15 per cent warrants for $27bn in unsecured bonds while the union receives a 17.5 per cent stake and preferred stock for a $20bn claim to a health care benefits fund.
Just more than half of the $27bn in bondholders have agreed to the restructuring plan after the government brokered a deal with large institutional holders. But small bondholders believe they are not being treated fairly.
GM owes Parker, 58, about $5m in convertible bonds and, when the hearings begin on Tuesday, he and other individual investors who oppose the plan will battlethe country’s top lawyers and the US government, which crafted the turnround. In bankruptcy, the court appoints an official committee to represent unsecured creditors and the estate pays the bill. The bondholders have representation on this committee but some feel their interests are not being reflected.

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But an unofficial committee of family and dissident bondholders lost a bid this week to gain official status as a separate committee, which would have meant the estate would pay the legal fees. The group still intends to continue to contest the sale separately.
The issue highlights the difficulty individual bondholders face when competing against claims by larger, better connected, groups. Top lawyers for GM and the unsecured creditors committee charge rates of more than $900 an hour.
The high fees and the difficulty of mobilising opposition mean that, throughout the process of reshaping the US car business, individuals, including the dealers, have garnered publicity and sympathy on Capitol Hill but not so much in bankruptcy court.
In a report, Moody’s said: “The government’s involvement in the Chrysler bankruptcy shifted the process sharply in favour of the [bankruptcy] code’s policy goal of giving a debtor a ‘fresh start’.”
Similar circumstances exist, the rating agency says, in the case of GM.
“At least treat retired private creditors as equals with the UAW retirees,” wrote Frank Wycoff, the retired professor, according to court documents.
A survey by a group calling itself the unofficial committee of family and dissident bondholders showed 86 per cent of those responding bought their bonds between 80 and 100 cents on the dollar and 68 per cent said the anticipated losses would affect them in “significant and detrimental ways.”
“The judge is going to listen to them but whether they have much luck depends on what they bring to the table,” says Lynn Tilton, head of Patriarch Partners, a private equity firm that specialises in acquiring distressed groups. “If you are a small group trying to go over the other constituents, unless you are really offering something better to the estate, cash in hand or another deal, you are not going to make much headway.”
The small bondholders, undaunted, intend to continue their challenge. The family and dissident bondholders have been gathering donations through a website to pay legal costs.
Michael Richman of Patton Boggs is representing them. They will argue that the fast-track sale is unjustified and push for a traditional Chapter 11 reorganisation, which they believe will give them more balanced treatment with the unions.
“We have enough to fund [the case] through our objections and we are working on funding it beyond that,” says Mark Modica, a business manager at a Saturn dealership and one of the GM bondholders spearheading the effort. “We are still in a fight.”