General Motors Corp.'s planned sale drew objections from Chrysler Group LLC, the other U.S. automaker that filed for bankruptcy protection this year, as well as at least 10 states and union retirees.
Attorneys general from Connecticut, Kentucky, Missouri, Nebraska, Maryland, Vermont, Minnesota, North Dakota, Ohio and West Virginia objected to the sale, saying it would circumvent state laws that protect GM dealers' contracts and consumers with product liability claims.
"In sum, the purchaser will, for all intents and purposes, clone the debtors, with the same employees and officers, without the attendant baggage of contracts unwanted only because they prevented the debtors' from running roughshod over the rights of their dealers," lawyers for West Virginia Attorney General Darrell McGraw Jr. wrote in a court filing yesterday.
GM filed for bankruptcy on June 1 after it was unable to reorganize outside of court and reported debt of $172.8 billion, more than twice its assets. A hearing on the Detroit-based company's proposed sale of its most valuable assets to Treasury- funded Vehicle Acquisition Holdings LLC is scheduled for June 30. Yesterday was the deadline to object.
"We're going to take our obligations seriously and work within the bankruptcy code and applicable laws to address objections," said Renee Rashid-Merem, a GM spokeswoman. She declined to comment on specific objections.
Steelworkers, Engineers
Retired steelworkers and engineers also objected to the sale, saying it would leave GM without funds to pay health benefits to more than 50,000 union-represented retirees and their families.
If GM manages to escape its obligations, retired steelworkers and engineers will have a $3 billion unsecured claim against the so-called old GM, and hundreds of millions for life insurance, according to the filing. Those claims would, "receive only pennies" after a sale, the United Steelworkers, IUE-CWA and International Union of Operating Engineers said in a joint objection.
"GM has been not only unfair, but cruel" in its treatment of the steelworkers and engineers, reneging on a deal to create a health care trust for them while agreeing to protect the health and life insurance benefits of retirees represented by the UAW, the unions said in the filing.
Under its current sale plan, the U.S. government would get 60 percent of the new GM for making $50 billion in bailout loans, according to the carmaker's bankruptcy filing. The UAW retiree trust would get a 17.5 percent stake, and two Canadian government entities would get an 11.7 percent equity share for their loans. Bondholders and unsecured creditors would share 10 percent of the equity, plus warrants.
New Chrysler
Chrysler LLC sold most of its assets to a group led by Italy's Fiat SpA in another Treasury-funded deal to create Chrysler Group. The so-called new Chrysler said it doesn't want its right to reject contracts with GM in its own bankruptcy case impinged by GM's request to assume at least six contracts as part of the sale.
Chrysler's decision to assume or reject contracts "must be adjudicated within the context of Chrysler's own bankruptcy case," the Auburn Hills, Michigan-based company said in its objection.
U.S. Bankruptcy Judge Arthur Gonzalez gave Chrysler approval for its sale in a May 31 opinion and that decision was affirmed by the U.S. Supreme Court June 9.
Liability Claims
Groups representing individual GM bondholders and tort claimants with product liability claims also filed objections yesterday. The individual bondholder group, represented by attorneys at Patton Boggs LLP, said it represents investors holding more than $400 million in GM debt. The group said in its objection that GM and the Treasury are improperly using a rushed sale rather than a proper Chapter 11 plan to restructure the automaker.
The tort claimants also argued the sale is "an illegal sub rosa plan" that treats the UAW benefit trust far better than other unsecured GM creditors.
"The preferential treatment of the UAW VEBA Trust violates the basic principle of equality that underlies the bankruptcy code and would not be allowed under a plan of reorganization," attorneys for the tort claimants wrote.
The case is In re General Motors Corp., 09-50026, U.S. Bankruptcy Court, Southern District, New York (Manhattan).
