Creditors Line Up Financing to Continue Fight Over GM Loan
June 08 2017 - 3:30PM
Dow Jones News
By Peg Brickley
Creditors awaiting a crucial ruling in a long-running $1.5
billion dispute growing out of the General Motors bankruptcy have
turned to outside lenders to bankroll the litigation.
Cash is running low, and private litigation- funding vehicles
Cynthania LLC and Earlham LLC have agreed to provide up to $15
million to allow GM creditors to continue a battle with J.P. Morgan
Chase & Co. and hundreds of other lenders.
A bankruptcy judge in New York will weigh the financing request
at a June 30 hearing.
The fight dates back years, to the time when the national
economy was shaken by mortgage losses and the fabled U.S. auto
maker needed a government assist to avoid being crushed under its
load of debt.
A paperwork gaffe resulted in the release of lender claims on a
large collection of GM assets -- equipment and fixtures at 42 GM
plants -- meaning loans J.P. Morgan believed were secured were in
fact unsecured. That is the creditors' position.
Backed by other lenders, J.P. Morgan contends it had claims to
other collateral with enough value to anchor its $1.5 billion loan
to GM as secured, in spite of the slip-up. Creditors say the other
collateral wasn't worth as much as J.P. Morgan says, so payments
lenders received should be returned to a trust.
Trial of the dispute over what the other collateral is worth has
wrapped up and closing arguments were made earlier this week. Once
there is a ruling on the collateral question, creditors expect to
go to mediation, with possible continued litigation past the end of
the year.
Creditor lawyers fear they won't have the funds to press forward
unless they get financing.
Court fights began not long after GM sought chapter 11
protection. The dispute over whether the paperwork error was a
harmless oversight or an effective release of the lender claims
took years, winding through the courts of New York and
Delaware.
Write to Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
June 08, 2017 15:15 ET (19:15 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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