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GM creditors to protest sale after Chrysler ruling

A group of individual General Motors Corp. bondholders plans to object to the carmaker’s planned sale of its best assets to a spinoff entity if they are recognized as an official bankruptcy committee, an investor lawyer said.

GM creditors face a June 19 deadline to oppose a plan to create a streamlined company with trimmed debt and wage costs. Chrysler LLC, after defeating a creditor challenge Tuesday in the U.S. Supreme Court, sold its Chrysler, Jeep and Dodge brands Wednesday to a spinoff run by Fiat SpA in a similar move.

“GM is completely different from Chrysler on the essential facts, and the Supreme Court made no decision other than to reject the appeal in Chrysler, so it has no precedential effect on our situation,” said Michael Richman, a lawyer in the New York office of Washington-based Patton Boggs LLP who represents an unofficial three-person committee of the bondholders.

GM bondholders won’t repeat the Chrysler creditors’ challenge to the use of billions of dollars from the Troubled Assets Relief Program to finance the sale, Richman said.

“The main issue is not about TARP funds, but rather the manner in which the parties have purported to allocate ownership in the new GM,” he said.

GM’s spinoff provision “appears to us to be designed as a sale in order to evade the plan confirmation requirements of the bankruptcy code,” he said. Normal bankruptcy procedures require months of objections, hearings, evidence presentation and valuation trials.

GM spokesman Tom Wilkinson didn’t return calls seeking comment.

The Obama administration set a goal of completing the sale in 60-to-90 days from the date of Detroit-based GM’s June 1 bankruptcy filing. GM Chief Financial Officer Ray Young told Bloomberg News June 4 the spinoff might be done in 60 days.

Chrysler’s creditors lost their fight late Wednesday after the Auburn Hills, Mich.-based carmaker and the U.S. government argued that every day of delay to consider creditor legal attacks was costing the government $100 million a day, would scuttle the deal and might result in liquidation and loss of 38,500 jobs.

The high court never got to the merits of the creditors legal arguments, finding they hadn’t satisfied the burden of showing why the justices should stay the sale while considering the case.

The court ruling said each request for a stay must be considered on a case’s individual facts, making it clear the ruling was not a precedent that might help GM or its creditors in any later suit.

Four justices must vote to accept an appeal; five must approve a stay while they review it.

The GM challenger group, which does not include institutional bondholders, would get funding from GM’s bankrupt estate if the judge in charge of the company’s reorganization recognizes them as an official committee.

Three of them, holding $2.3 million of GM’s $27 billion in bonds, have made the committee request, Richman said. The investors are in touch with 1,500 others holding an estimated $400 million in bonds and “hope to represent” them as an official committee, he said.

The three are Harold A. John of Chesterfield, Mo., Mark Modica of Chalfont, Pa., and Wade McGee of Elmhurst, Ill., according to a court filing Tuesday.

They had been talking to Thomas Lauria, the White & Case LLP lawyer who represented the dissident Chrysler creditors, before choosing Richman to take their case.

A group of GM’s institutional bondholders, holding about 54 percent of the carmaker’s bond debt, agreed May 31 to support GM’s asset plan and to swap their debt for a 10 percent equity stake in the new company, plus warrants.

The equity plan the individual bondholders oppose would give the U.S. government 60 percent of the new GM for making $50 billion in bailout loans to the 100-year-old automaker, according to the carmaker’s bankruptcy filing. A worker fund would get a 17.5 percent stake for giving up health-care benefits, and two Canadian government entities would get an 11.7 percent equity share for their loans.

The case is In re Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan).