Bankruptcy

GM's Bondholders

By Stephen Lubben

Felix Salmon has an important new post on the practical differences between the Unions and GM's bondholders, even if they are both formally unsecured creditors.

It's also important to remember that the GM bondholders are unsecured, unlike the dissenting creditors in Chrysler. Whatever reservations we may have about the treatment of the creditors in Chrysler, the GM bondholders are in a substantially infeior position.

Indeed, after the U.S. and Canadian governments provide several billion dollars of presumably secured DIP financing, any recovery that unsecured creditors get will amount to a gift from the governments as secured lenders. Under the much-discussed absolute priority rule, the and post-bankruptcy secured lenders would arguably take all of the value in GM.

Time to re-read In re SPM Mfg Corp, 984 F2d 1305 (1st Cir. 1993) and the rules about "gift plans" again.

Full post as published by Credit Slips on May 27, 2009 (boomark / email).