Paulson, Elliott Want 'Old GM' Estate to Pay $1.5 Million Fee for Settlement
By Joseph Checkler
Big-name hedge fund managers and other noteholders who resolved a $2.67 billion claims fight with General Motors creditors want their professional fees paid from the coffers of "old GM's" bankruptcy estate.
In a Wednesday filing with U.S. Bankruptcy Court in Manhattan, lawyers for Paul Singer's Elliott Management and John Paulson's Paulson & Co., among other hedge funds and investors, said they made "substantial contributions" to the case and should get a portion of their professional fees--$1.5 million--paid from the estate of the former incarnation of GM.
The compromise, lawyers said, ended "contentious, time-consuming, and expensive litigation that stood as one of the last remaining obstacles to bringing these Chapter 11 Cases to a close."
The agreements put an end to a long-running legal fight involving a payment old GM made to bondholders of GM's Nova Scotia unit before the company's 2009 bankruptcy. Also asking for their fees to be paid are Morgan Stanley (MS), Fortress Investment Group LLC (FIG) and the trustee for GM Nova Scotia's bankruptcy estate, Green Hunt Wedlake Inc.
The settlement, filed with the court last week, cut $1.13 billion in claims the hedge fund managers had against the estate and thus increased possible payouts to unsecured creditors. The trust was created to find assets and manage litigation claims on behalf of creditors of the old GM.
"If the global settlement is approved, the contributions of the [hedge fund managers] in spearheading multiple efforts to settle the matters at issue over the course of the past year" will save the trust "millions in attorneys' fees and expenses," lawyers for the noteholders said.
The fee request, which would cover just a portion of the bill for their professionals, was negotiated as part of the settlement. Such fee requests are becoming more common in bankruptcy cases.
If a creditor or group of creditors is deemed to have made a substantial contribution in a bankruptcy case, a portion or all of their fees can be paid by the estate.
Judge Robert E. Gerber of U.S. Bankruptcy Court in Manhattan will decide on the settlement and the fee at a hearing later this month.
In 2012, the creditors' trust sued GM and the hedge funds over a 2009 transaction that gave $367 million to four hedge funds, including those managed by Elliott and Fortress. The settlement was intended to keep GM Canada out of bankruptcy. The hedge funds agreed in June 2009 to waive $1.3 billion in claims in exchange for a $367 million payment. The payment came from GM Canada, which borrowed $450 million from old GM to make it.
Two other funds, David Tepper's Appaloosa Management and Mark Brodsky's Aurelius Capital Management, that were involved in the original transaction sold their bonds and aren't involved in the dispute.
Lawyers for the trust had argued the deal that gave the funds $367 million should be unwound under bankruptcy law. If the payment was canceled by the court, it would have put 'new' GM on the hook for at least $1.3 billion in claims.
A GM spokesman said earlier this week that the company was pleased to resolve the litigation over the Nova Scotia unit. The auto maker said in a regulatory filling that it would take a $50 million charge related to the settlement in its third quarter.
The bondholders, now including Paulson and Morgan Stanley, consistently denied any wrongdoing and fought the creditors' lawsuit.
U.S. taxpayers still own about 7.8% of the reorganized Detroit auto maker, which replaced the "old GM" that filed for bankruptcy more than four years ago.
The Treasury, which has set an April 2014 goal to complete its exit from the auto maker, launched a third round of GM common-share sales last week.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)
--Patrick Fitzgerald contributed to this article.
-Write to Joseph Checkler at firstname.lastname@example.org
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