A lawsuit over $3 billion in claims in the bankruptcy of General Motors Co. (GM:US)’s old assets needs court-ordered mediation, funds owned by Paulson & Co. said.
Holders of notes in a Nova Scotia unit of the automaker, including Paulson funds, previously tried to settle a dispute over the claims and failed. Paulson asked U.S. Bankruptcy Judge Robert Gerber to reinstate settlement talks, overseen by another bankruptcy judge, according to papers filed today in U.S. Bankruptcy Court in Manhattan.
“The parties may be able to reach a settlement if they had the assistance of a sitting bankruptcy judge with experience in mediating complex Chapter 11 disputes, such as the Honorable James M. Peck,” lawyers for Paulson wrote in a letter to Gerber signed May 30.
Elliott International LP and a unit of Fortress Investment Group LLC (FIG:US) are among hedge funds that failed to reach an agreement with the trust liquidating General Motors’ old assets over a $367 million consent fee and a claim of $2.67 billion related to the automaker’s 2009 bankruptcy filing, according to court papers.
The dispute (GM:US) stems from a settlement made between the hedge funds and a Canadian unit of GM the day of the bankruptcy filing. The trust liquidating the old assets, called Motors Liquidation Company GUC Trust, seeks to reduce or eliminate the claims that the hedge funds negotiated.
GM Chief Financial Officer Daniel Ammann testified in past hearings that a negative outcome in the dispute over the Canadian notes could cost the automaker, now out of bankruptcy, as much as $918 million (GM:US), or 50 cents a share.
The trust sued four hedge funds in Manhattan bankruptcy court in March 2012, alleging that while GM was preparing its bankruptcy filing, the funds steered events to gain a position of power that allowed them to make the claim three times the size of what they were actually owed, improperly benefiting themselves at the expense of general creditors.
The hedge funds say they didn’t do anything improper, and that if general creditors undo the agreement they struck in the hours before the bankruptcy, it will scuttle the entire deal that separated liabilities from GM’s profitable business, hurting the reorganized automaker.
Units of the GUC Trust fell 2 percent to $31.15 in over-the-counter trading at 11:55 a.m. in New York. They have climbed 47 percent this year.
The notes at issue -- 8.375 percent notes due in 2015 and the 8.875 percent notes due in 2023 -- recently traded at 40.94 cents on the dollar and 40.88 cents on the dollar, respectively, according to Trace, the bond price reporting system of the Financial Regulatory Authority.
The main bankruptcy case is In re Motors Liquidation Co., 09-bk-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The adversary case is Motors Liquidation Company GUC Trust v. Appaloosa Investment Limited Partnership I, 12-bk-09802, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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