ADVERTISEMENTS

In both cases the "good" assets will be sold to new entities.  The consideration for that sale goes to the "old" debtor, and will be distributed according to the absolute priority rule.  Not a sub rosa plan.

The press has speculated -- generally accurately -- that all the consideration will go to the secured lenders in Chrysler.  They have a $6.9 billion claim and the sale proceeds are $2 billion.  The press has also speculated that the consideration in GM will go to the bondholders.  That's only partially right; the GM papers make clear that the consideration will go to GM to distribute to creditors.  Since the secured lenders will have been paid off by this point, the sale proceeds will go to unsecured creditors (of which the bondholders are one part).

This still does not make it a sub rosa plan.

In both GM and Chrysler the Union is getting better treatment than other unsecured creditors.  BUT that better treatment is not coming from the debtor.  It is coming from the U.S. government, passing through the purchaser of the "good" assets in each case.  We can debate whether it is wise for the government to bail out the Unions, but it still does not make it a sub rosa plan.

Bloggers, promote your law blog by nominating your blog for inclusion in USLaw.com's Law Blog Directory and RSS Reader. Benefits described.