GM Facing Lawsuit that Could Cost $918 Million

A lawsuit against old GMGMUnited States of America, 1998 > present8 models
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could cause the modern incarnation of the automaker to lose a $918 million loan. 

The problem stems from the bailout of old GM in 2009. The General Motors Corporation's best parts were sold to the new company, General Motors Company, and the rest was liquidated to creditors.

Those creditors were split into two criteria - secured and unsecured. Secured creditors, which were mostly hedge funds, held about $1 billion in stock and received $367 million to keep them from protesting the government bailout. The unsecured creditors received far less. 

Now, the unsecured creditors have filed a class-action suit against old GM claiming that the agreement for the hedge funds not to complain was done in secret, and the unsecured creditors lost money because of the deal. 

“The bottom line is that this matter is huge. There was a lack of disclosure to the court on the matter with the potential to injure ‘Old GM’ creditors to the extent of hundreds of millions, if not billions of dollars," said Judge Gerber who is presiding over the case. 

The judge's official decision will not come before the end of the month at the earliest and only affects old GM, but there are implications for new GM as well. 

New GM Canada has a $918 million loan with a Canadian bank that was associated with the hedge funds invested in the company. This loan was not able to be tied up and was carried over to the new company. The judgment in this case could mean that GM would have to pay the loan back immediately. 

GM's defense is that the payment to the hedge funds happened before new GM existed. If the judge finds against them, he is effectively undoing the restructuring that created new GM. 

Regardless of which side wins, there is sure to be an appeal, and GM will not have to pay back this money for years to come. 

Source: Car Scoop