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AUTOS

'New' GM gets the go-ahead

Judge OKs a sale of the assets, clearing the way for bankruptcy to end.

July 06, 2009|Ken Bensinger

A federal bankruptcy judge has cleared the way for a sale of the bulk of General Motors Corp.'s assets to a new entity, opening the door for the troubled automaker to emerge from Chapter 11 early this week.

The decision, handed down by Judge Robert E. Gerber in New York late Sunday night, came over the objections of some 850 parties.

They argued in court last week that the sale would shortchange creditors, dealers, car owners and others.

GM countered by saying that the plan to emerge from bankruptcy in this manner was the best for all parties, and that delaying such a sale could jeopardize the automaker's chances of receiving further aid from the federal government, potentially forcing a complete breakup of the company.

Indeed, last Harry Wilson, a member of the Treasury Department's autos task force, testified last week that the government had no intentions of funding GM after July 10.

Judge Gerber, in his decision, clearly agreed with that opinion.

"The only alternative to an immediate sale is liquidation -- a disastrous result for GM's creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates," the judge wrote. "In the event of a liquidation, creditors now trying to increase their incremental recoveries would get nothing."

With Sunday's decision, GM and the government will be able to carry out the plan to sell much of the automaker's assets, including Chevrolet, Buick, GMC and Cadillac, to a new entity, while leaving other parts of the company behind.

That money -- $1.18 billion, which will be lent to GM by the Treasury Department -- will be used by the "old" GM to wind-down the estate and use sale proceeds to pay off both secured and unsecured creditors.

Unlike Chrysler's acquisition by Fiat, GM will not be sold to another company.

Instead, it will be purchased by a new entity that will be 60% owned by the federal government, which is lending GM $30.1 billion in addition to money it's already lent to it.

The remaining stake will be divided between the United Auto Workers union, the governments of Canada and Ontario, Canada, and a group of GM's bondholders.

The "new" GM will initially be privately held, with plans to publicly trade stock next year.

That purchase is expected to take place as soon as today.

If so, it will mean that GM will have emerged from what is one of the largest bankruptcies in U.S. history in scarcely more than a month.

--

ken.bensinger@latimes.com

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