Potential Impact of Treasury's Proposed Sale of GM Stock on Old GM's Creditors

15 January 2013 Dashboard Insights Blog

Did you or your company have an allowed claim in the General Motors bankruptcy case? If so, have you sold your allowed claim or the stock and warrants you received on account of your claim? If not, the U.S. Department of Treasury’s recent announced that it is planning to sell its remaining stake in new General Motors (“New GM”) in the next 15 months could impact your ultimate recovery. 

Of the Treasury’s remaining 500 million shares of New GM stock, 200 million shares will be sold back to New GM for a price of $27.50 per share for an aggregate amount of $5.5 billion and the remaining 300 million shares will be sold by 2014. Since the announcement, New GM’s shares have increased from $24 per share on December 14th, 2012.

While this announcement has a determinable impact on U.S. taxpayers and current New GM shareholders, overlooked is the potential impact on the creditors of Old GM whose claims were paid with shares in New GM. Through Old GM’s plan of reorganization approved by the United States Bankruptcy Court for the Southern District of New York on March 29, 2011, Old GM’s general unsecured creditors received distributions of stock and warrants in New GM based on the amount of their allowed claim.

For those creditors who have not yet liquidated the stock they received under the plan of reorganization, the Treasury’s announcement could impact the amount they will recover on account of their claims against Old GM.  In the short term, the stock price has increased based on New GM’s agreement to purchase 200 million shares from the Treasury for $27.50 per share. However, over the next 15 months, the Treasury will be liquidating its remaining 300 million shares of New GM stock potentially impacting the price of New GM stock and the ultimate recovery of Old GM’s creditors who have not yet liquidated their New GM stock. 

Thus, if you waited to sell your New GM stock, the activities of the Treasury and New GM over the coming months could materially impact your ultimate recovery on your claim against Old GM and you should consider your strategy regarding your New GM shares with the Treasury’s announcement in mind.

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