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Could GM’s Bailout Be Wiped Out?

Inter­est­ing read at the Wash­ing­ton Free Bea­con.  Remem­ber all those GM bond hold­ers who Obama and the UAW screwed over dur­ing the forced bank­ruptcy in 2009?

Well, they’re suing in a New York Court, and it looks like they just might win.

A New York fed­eral judge may rule immi­nently on a case that could reverse the Gen­eral Motors (GM) bailout and send the com­pany back into bank­ruptcy, accord­ing to sources close to the case.

At issue is a back­room deal hatched by GM to ful­fill the Obama administration’s demand for a quick bank­ruptcy, drain­ing the automaker of nearly all of its cash on hand and leav­ing it in worse shape than it was when it col­lapsed in 2009.

One con­di­tion of GM’s bailout was to shore up its over­seas sub­sidiaries. On the eve of enter­ing bank­ruptcy, the com­pany cut a $367 mil­lion “lock-up agree­ment” with sev­eral major hedge funds to pre­vent GM Canada from fail­ing. The agree­ment ensured that GM could spin-off its lia­bil­i­ties to “old GM,” while using a multi-billion dol­lar bailout to cre­ate a new company.

All of that could be reversed if bank­ruptcy Judge Robert Ger­ber reopens the process and rules in favor of old GM trustees, who are suing the hedge funds at the cen­ter of the lock­out agreement.

In this par­tic­u­lar sit­u­a­tion, there’s $1.3 bil­lion in lia­bil­i­ties, but that’s just what’s offi­cially back on the table if the court rules for old GM,” said a bank­ruptcy expert close to the nego­ti­a­tions. “If those go back on the table then every­thing could be back on the table and [new GM] would have to address them.”

How is the “New GM” doing?

Well, this is never a good sign.

Those lia­bil­i­ties, which include old GM’s debt and prod­uct lia­bil­i­ties that pre-date bank­ruptcy, are val­ued at $30 bil­lion, a sum that would wipe out the company’s $34.6 bil­lion cash reserves.

Nego­tia­tors rep­re­sent­ing both sides of the case met in New York on Thurs­day to try to set­tle the suit through medi­a­tion rather than a court order.

They’re feel­ing pretty good about it,” said an indus­try insider who spoke to one of the hedge fund nego­tia­tors on Thursday.

Judge Ger­ber was the one who ini­tially decided on the bailout, pretty much rub­ber stamp­ing the deal with­out look­ing at the facts regard­ing “New GM’s” treat­ment of “Old GM’s” cred­i­tors.  If this thing gets re-opened, it is not going to be pretty finan­cially, polit­i­cally, and six other ways til Sunday.


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