In re Motors Liquidation Co.

• Decision Date: 28 April 2010
• Docket Number: No. 09 Civ. 7794.,09 Civ. 7794.
• Citation: 430 B.R. 65
• Parties: In re MOTORS LIQUIDATION COMPANY, et al., f/k/a General Motors Corp., et al., Oliver Addison Parker, Appellant, v. Motors Liquidation Company, et al., Appellees.
• Court: U.S. District Court — Southern District of New York

430 B.R. 65

In re MOTORS LIQUIDATION COMPANY, et al., f/k/a General Motors Corp., et al.,

Oliver Addison Parker, Appellant, v. Motors Liquidation Company, et al., Appellees.

No. 09 Civ. 7794.

United States District Court, S.D. New York.

April 28, 2010.

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Oliver Addison Parker, Lauderdale by the Sea, FL, pro se.

Weil, Gotshal & Manges LLP, New York, NY, for Appellee Motors Liquidation Company.

Preet Bharara, United States Attorney for the S.D.N.Y., by David S. Jones, Esq., New York, NY, for Appellee The United States of America.

OPINION

SWEET, District Judge.

General Motors Corporation and certain of its affiliates (collectively, "GM" or the "Debtors") each commenced a case under chapter 11 of title 11, United States Code (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") on June 1, 2009 (the "Commencement Date") and immediately thereafter moved for approval of the sale of substantially all of their assets to a United States Treasury-sponsored purchaser, NGMCO, Inc. n/k/a General Motors, LLC (the "Purchaser" or "New GM"), pursuant to Section 363 of the Bankruptcy Code (the "Sale" or the "363 Transaction"). The Bankruptcy Court entered an order approving the 363 Transaction dated July 5, 2009 (the "Sale Order"), and issued an 87-page written decision, In re General Motors Corp., 407 B.R. 463 (Bankr.S.D.N.Y. 2009) (the "Sale Opinion" or "Sale Op."). Appellant Oliver Addison Parker ("Parker" or the "Appellant"), an attorney appearing pro se, is an unsecured bondholder who objected to the Sale and has now appealed the Sale Order. Upon the conclusions set forth below, the Sale Order is affirmed.

Prior Proceedings

The facts and prior proceedings are set forth in the Sale Opinion, a July 7 Opinion,¹ and declarations and proceedings before the Bankruptcy Court.

Background of the Bankruptcy

In response to the troubles plaguing the American automotive industry, the United States of America through the Treasury Department ("Treasury") and the Presidential Task Force on the Auto Industry (the "Auto Task Force") implemented various programs to support and stabilize the domestic automotive industry. Those programs have included, among other things, providing credit support for receivables issued by certain domestic automobile manufacturers and support for consumer warranties. See Sale Op. at 477.

Treasury also provided direct loans to certain automobile manufacturers. See id. Specifically, at GM's request in late 2008 and following arms'-length negotiations, Treasury determined to make available to GM billions of dollars in emergency secured financing (the "Prepetition Loan") to sustain GM's operations while it developed a new business plan. See id. "At the time that the U.S. Treasury first extended credit to GM, there was absolutely no other source of financing available. No party other than Treasury conveyed its willingness to loan funds to GM and thereby enable it to continue operating." Id.

The first loan came in December 2008, after GM submitted its proposed viability plan to Congress. See id. That plan contemplated GM's shift to smaller, more fuel-efficient cars, a reduction in the number of GM brand names and dealerships, and a renegotiation of GM's agreement with its labor union, among other things. As part of its proposed plan, GM sought emergency funding in the form of an $18 billion federal loan. See id.

After negotiations, Treasury and GM entered into a loan agreement on December 31, 2008, that provided GM with up to $13.4 billion in financing on a senior secured basis. See id. Under that term loan facility, GM immediately borrowed $4 billion, followed by $5.4 billion less than a month later, and the remaining $4 billion on February 17, 2009. See id. The GM-Treasury loan agreement required GM to submit a proposed business plan to demonstrate its future competitiveness that went significantly further than the one GM had submitted to Congress. See id. at 478. Among other conditions of Treasury's willingness to provide financing, GM was to demonstrate its long-term viability by reducing its outstanding public debt (approximately $27 billion) by at least two-thirds, and converting from cash to common stock at least half of the value of its $20 billion contribution to a union health care trust (the "UAW VEBA"). See id.

Treasury and GM subsequently entered into amended credit agreements to provide for an additional $2 billion in financing that GM borrowed on April 24, 2009, and another $4 billion that GM borrowed on May 20, 2009. See id. at 479. The $19.4 billion in total funds advanced to GM under the Prepetition Loan (all on a senior secured basis) were critical to GM's survival during the months leading up to GM's bankruptcy, and afterwards. See id.

Although the Government's decision to provide financing was intended to avoid the drastic and systemic consequences that would result from a GM liquidation, Treasury insisted from the start as a condition of its financial support that GM take the steps necessary to transform itself into a competitive, and successful, player in the global automotive market. See id. The Government's decision to loan substantial additional taxpayer funds to GM—in the form of an approximately $33.3 billion debtor-in-possession facility, which provided critical funding to GM pending the approval and consummation of the asset sale (the "DIP Loan")—was motivated not only by the threat of liquidation and the desire to avoid the consequences of such liquidation, but also because the Government concluded as a result of an exhaustive analysis conducted by Treasury and the Auto Task Force that the creation of a new, competitive GM was a worthwhile pursuit. See id. at 479-80.

On March 30, 2009, the President announced that GM's efforts to develop a long-term viability plan had fallen short and that the advancement of any additional federal loans to GM beyond the subsequent sixty-day period would require a more aggressive effort to map out a clear path to long-term viability. See id. at 479. In connection with the effort that followed, Treasury and the Auto Task Force continued their due diligence and analysis of all material aspects of a successful New GM. GM and other stakeholders conducted their own analyses, as well. Ultimately, all agreed that the only viable course was for GM to pursue a transaction under Section 363(b) of the Bankruptcy Code (the "Sale") with the support of Treasury, the governments of Canada and Ontario, through Export Development Canada (collectively, "Canada"), and other constituents. See id. at 480, 484-85.

The transaction ultimately agreed upon contemplated the formation of a new Treasury-sponsored entity that, assuming GM received no better offer, would acquire certain substantial assets of GM. As part of the Sale, that newly-formed entity (i.e., New GM), as assignee of Treasury's rights and claims under the Prepetition Loan and the DIP Loan, was to credit bid substantially all of GM's indebtedness against certain assets of GM. Immediately upon closing, New GM was to contribute (a) 10% of its common equity to the bankruptcy estates (plus two tranches of warrants at various strike prices, each for an additional 7.5% equity stake) for distribution to creditors in the bankruptcy court; (b) 17.5% of its common equity on an undiluted basis to a new Voluntary Employee Beneficiary Association formed pursuant to an agreement between New GM and its unionized work force (the "New VEBA"); and (c) 11.7% of its common equity (pre-dilution) to Canada. See id. at 479-83 (describing terms of the Sale). As a result, upon the full consummation of the Sale and subsequent allocations of equity, Treasury was contemplated to hold an undiluted 60.8% stake in New GM. See id. at 482.

The Sale and allocations of certain agreed-upon value from New GM to the New VEBA, Canada, and to Old GM for disposition in the bankruptcy court garnered support from a broad spectrum of constituents as GM entered bankruptcy. GM, GM's work force, Treasury, Canada, GM's other secured lenders, and bondholders holding more than 54% of GM's approximately $27 billion of unsecured debt all supported the Sale and related transactions. See id. at 473-74.

The Bankruptcy and the 363 Motion

On June 1, 2009, GM and certain of its subsidiaries each filed petitions for relief under chapter 11 of the Bankruptcy Code. See id. at 479.

Also on June 1, 2009, GM and its subsidiaries filed a motion with the Bankruptcy Court, pursuant to Sections 105(a), 363 and 365 of the Bankruptcy Code, to approve the sale of substantially all of its assets, and the assumption of certain contracts and leases and their assignment, to the Purchaser (the "363 Motion") in consideration of a purchase price with a value of over $90 billion. (CD-5.) The 363 Motion requested expedited approval of the 363 Transaction subject to any higher or better offers. (Id. at 8 ¶ 15.) On the same day, GM filed a motion seeking authorization of Treasury's $33.3 billion DIP Loan so that GM could maintain its operations pending the close of the Sale. See Sale Op. at 479. The availability of such financing was expressly conditioned upon the swift approval and closing of the Sale. Absent such financing, GM faced immediate liquidation. See id. at 480.

The 363 Transaction contemplated that substantially all of GM's core assets—i.e., those that Treasury and the Purchaser considered essential for New GM to be a competitive, economically viable operating entity—would be sold and transferred to the Purchaser. (7/1 Hearing Tr. at 135; CD-50, at 6 ¶ 13.) The consideration to GM had a total value in excess of $90 billion (CD-19, Ex. F at 15), consisting of:

• a Section 363(k) credit bid in an amount (estimated to be $48.7 billion at July 31, 2009) equal to the amount of

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