Little guys lose a round at GM

Individual bondholders lost a bid in court Tuesday to gain official standing in General Motors’ bankruptcy proceedings.

Judge Robert E. Gerber of the U.S. Bankruptcy Court in New York denied a request by the Unofficial Committee of Family and Dissident GM Bondholders to become an official committee.

Official status would have allowed the bondholder group’s legal fees to be paid by GM’s bankrupt estate.

The committee, which represents more than 1,500 bondholders with estimated holdings of more than $400 million at face value, maintains that the terms of GM’s pre-arranged bankruptcy reorganization plan are unfair.

The equity stake offered to the bondholders is disproportionately small compared with those offered to creditors such as the United Auto Workers union, the U.S. Treasury and the governments of Canada and the Canadian province of Ontario, the committee said.

Further, the bondholders maintain they deserve representation independent from the institutions that own GM bonds. Those investment houses and funds had a seat at the table in negotiations with the company prior to its bankruptcy filing.

Bondholders, including some featured in last week’s Washington Times series, “The Bondholders,” vowed their legal challenge will go on.

“It’s a disappointment, but we still have an objection in, and we will continue to fight it,” said Mark Modica, manager of a Saturn dealership in Chalfonte, Pa.

An attorney for the bondholders said the judge’s decision was not surprise.

“We knew it was a longshot going in,” said Michael P. Richman, chairman of the bankruptcy practice at Washington-based law firm Patton Boggs.

“I don’t think it has anything to do with the merits of our objection” to the bankruptcy sale of GM’s assets, he said.

“We have every right to continue as an ad-hoc committee. Clearly we have some concerns about what we can do with limited resources,” he said.

The committee still has a chance to have its legal fees reimbursed if, at the end of the process, the court deems that is has made a “substantial contribution” to the case, Mr. Richman said.

The Obama administration has consistently stated that the only alternative to its managed bakruptcy plan for GM was liquidation. In the case of Chrysler, with the same level of government involvement, a bankruptcy judge agreed earlier this month, and the Supreme Court declined to hear an appeal by creditors.