Initially filed in Manhattan bankruptcy court in March, a lawsuit pitting hedge funds against creditors went to trial on Tuesday. The proceedings are of significant nature as the suit threatens to undo the creation of the New GM.
A trust for Old GM (Motors Liquidation Co.), claims that certain hedge funds, including Appaloosa Management LP, Elliott Management Corp. and Fortress Investment Group LLC, “saw an eleventh-hour opportunity for profit and pounced.”
The trust alleges that since the agreement with the hedge took place after GM came under bankruptcy protection, the hedge fund therefore required the approval of bankruptcy court — something that the trust claims the hedge fund never did. As such, the trust is looking for a $367 million payment and a $2.67 billion claim from holders of GM Nova Scotia notes either reduced or negated. The trust states that the hedge funds are looking to be compensated at a rate three times than what was owed to them by GM.
For its part, GM claims that the agreement with the hedge funds allowed it to direct intracompany loans, which was necessary to move the company out of bankruptcy. Without the agreement, the automaker would have been forced to liquidate immediately, says GM.
“New GM intends to participate in the trial of the claims objection to the extent required to protect and preserve the sale order,” wrote the automaker’s lawyers.
The GM Authority Take
Having a heck of a time wrapping your head around this financial riff-raff? Don’t worry — it took us several times to understand what’s going on here, as well. Basically, the trust is claiming that the hedge funds negotiated through dawn and ended up charging the aforementioned amounts to GM at the last minute. Specifically, the hedge fund agreement was finalized after the bankruptcy lock-up agreement took effect (at 7:57 am on June 1, 2009 before U.S. Bankruptcy Judge Robert Gerber in Manhattan), versus 9:21 am that same day for the hedges.
We’ll keep an eye on as this develops at the ultimate place for GM News — GM Authority.