Former GM trust: Conference up next after interest termination ruling

By Caroline Salls

Pittsburgh, Jan. 26 – Motors Liquidation Co. GUC Trust’s administrator expects the U.S. Bankruptcy Court for the Southern District of New York to schedule a status conference to determine the next steps in an avoidance action after an appeals court ruling, according to an 8-K filed Monday with the Securities and Exchange Commission.

As previously reported, on Jan. 21 the U.S. Court of Appeals for the Second Circuit reversed a bankruptcy court order stating that General Motors Corp. term loan agent JPMorgan Chase Bank, NA’s inadvertent termination of a security interest was unauthorized and not effective.

The appeals court’s ruling came in response to an appeal filed by the official committee of unsecured creditors of Motors Liquidation Co., which was left as the bankrupt entity when GM emerged from Chapter 11.

“We conclude that although the termination statement mistakenly identified for termination a security interest that the lender did not intend to terminate, the secured lender authorized the filing of the document, and the termination statement was effective to terminate the security interest,” the appeals court said.

The appeals court said GM entered a term loan in 2006 secured by a large number of its assets, including all of its equipment and fixtures at 42 facilities throughout the United States. JPMorgan served as administrative agent and secured party of record for that term loan, as well as a $300 million 2001 synthetic lease financing transaction.

When the synthetic lease was nearing termination in 2008, a list of security interests to be terminated under that transaction mistakenly included the interests related to the term loan.

According to the Jan. 21 ruling, the error went unnoticed. On Oct. 30, 2008, General Motors repaid the amount due on the synthetic lease, and the security interests related both to the lease and the term loan were identified for termination to the Delaware Secretary of State.

JPMorgan noticed the error after General Motors filed bankruptcy in 2009. The committee filed a lawsuit against the administrative agent, seeking a ruling that, despite the error, the termination statement was effective to terminate the term loan security interest and render JPMorgan an unsecured creditor on par with the other General Motors unsecured creditors.

JPMorgan argued that the termination statement was unauthorized and therefore ineffective because no one at JPMorgan, General Motors or their law firms had intended the term loan security interest be terminated.

Claims distribution

In Monday’s 8-K, Motors Liquidation said, to the extent that the committee’s action is successful in obtaining the return of proceeds previously transferred to the administrative agent and secured lenders by the GM debtors, the amount returned will give rise to a claims distribution.

Holders of those claims would be entitled to receive a distribution of reserved GM common stock, any cash and cash equivalents held by the trust related to that common stock, any New GM common stock that has been set aside from distribution, reserved or sold, any dividend cash related to the New GM stock and new GM warrants, which include the warrants to acquire shares of New GM common stock at an exercise price of $10 per share and the warrants to acquire shares of at an exercise price of $18.33 per share.

In addition, claimants would be entitled to reserved units representing contingent rights to receive additional shares of New GM common stock and New GM warrants from the trust, which would reduce the amount of New GM securities available for distribution in the future to holders of GUC trust units.

Motors Liquidation was formerly General Motors, a Detroit-based automaker that filed for bankruptcy on June 1, 2009. The new General Motors Corp. emerged from Chapter 11 on July 10, 2009. Motors Liquidation’s Chapter 11 case number is 09-50026.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.