GM Bondhholders Could Get Additional 2% Equity In New Co.
08 Juli 2009 - 6:10PM
Dow Jones News
DETROIT (Dow Jones) --General Motors Corp.'s ( GMGMQ) unsecured
bondholders stand to get an additional 2% of equity in the
post-bankruptcy GM in the event that unsecured claims against the
auto maker exceed $35 billion, the company said in a regulatory
filing Wednesday.
The equity would be in addition to a 10% share in the new GM
promised to bondholders along with warrants for an another 15%.
The additional equity will go into the so-called "Old Co." Stock
in Old Co. will eventually be transferred to existing
bondholders.
GM has no estimate of how much in claims may eventually be filed
against the old company. In discarding unwanted assets, the company
is leaving behind many old factories that could pose environmental
issues as well as lawsuits from numerous groups and individuals,
from accident victims to asbestos-related claims.
A bankruptcy judge approved a sale of GM's profitable assets
Sunday to a new GM, leaving the money-losing parts of the business
to be liquidated. The sale process could stretch on for several
years.
Last week, in testimony leading up to the ruling, lawyers
representing a variety of groups with unsecured claims against GM
argued against the sale, saying it left their clients no
recourse.
Judge Robert Gerber said leaving such claims out of the
bankruptcy process was necessary to "preserve the continuation of
GM's business." He said the decision to shield GM from so-called
successor-liability issues was "the only truly debatable issues in
this case."
With the sale approved, GM could exit bankruptcy in as little as
two months. The company will be named General Motors Company, while
the remaining business will be called Motors Liquidation
Company.
GM's bondholders lost big in the auto maker's bankruptcy, which
ultimately converted $27 billion in debt to a 10% equity stake in
the new company, an outcome that amounted to cents on the dollars.
Under the deal, the U.S. government will become GM's majority owner
after Chapter 11, with the United Auto Workers and Canadian
governments holding large stakes.
-By Sharon Terlep; 248-204-5532; sharon.terlep@dowjones.com.