General Motors
Davidson Kempner Says Proposed Settlement With DIP Lenders Is a Potential ‘Windfall’
Fri 07/29/2016 18:13 PM
Relevant Documents:
Davidson Kempner Capital Objection
Davidson Kempner Capital Management, a beneficiary of the Motors Liquidation avoidance action trust and a general unsecured creditor of the debtors, submitted an objection on Friday afternoon to the joint motion of the avoidance action trust, or AAT, and the official committee of unsecured creditors to approve the settlement with the debtors’ DIP lenders. The objection charges that the bankruptcy court lacks jurisdiction to make a determination on the motion and that “the price the Committee is inexplicably willing to pay for the DIP Lenders’ loan - 30% of any recovery in the Allocation Dispute - is well beyond the range of reasonableness.”
The objection follows and builds upon the limited objection filed by River Birch, which argued that a permitted alternative funding event has not occurred under the Private Litigation Funding Agreement with the AAT and warned that approving the proposed settlement with the DIP lenders could lead to breach of contract claims against the AAT.
With respect to Davidson Kempner’s objection, the filing contends that, as preliminary matter, the bankruptcy court lacks jurisdiction over the underlying allocation dispute and therefore the court “should not even engage in a determination of whether the proposed settlement is appropriate until such time as there is a justiciable case to settle.” According to the objection, Judge McMahon’s ruling effectively put the allocation dispute “on hold” until resolution of the term loan avoidance action, precluding the court from exercising jurisdiction over the joint motion.
The filing further asserts that even if the court were to have the authority to make a determination on the proposed settlement, the court should deny it because the administrator and committee fail to demonstrate that they “bear[] a substantial enough risk of losing a re-litigation of the Allocation Dispute (which it already won) to justify giving up 30% of general unsecured creditors’ recoveries” under the term loan avoidance action and “potentially agreeing to give the DIP Lenders a windfall of more than 50% of what they are owed.”
Echoing the cost concerns previously raised by River Birch, Davidson Kempner contends that the proposed settlement could leave the AAT beneficiaries “worse off by up to hundreds of millions of dollars, with the only benefit being that the DIP Lenders would agree to settle the Allocation Dispute, even though those claims have already been decided in the Committee’s favor” (emphasis added).
To illustrate this point, Davidson Kempner prepared the following chart, which compares, at various amounts, (i) the 30% recoveries that the DIP lenders would receive under the proposed Litigation Cost Advance Agreement and (ii) the fees/recovery that it would receive under the Private Litigation Funding Agreement:
The objection charges that the committee and AAT “are settling this matter without clearly understanding the quantum of what they are giving up,” as they have failed to set forth their position on the amount of potential distributions that general unsecureds could obtain through litigating the allocation dispute.
The hearing on the joint motion is scheduled for Friday, Aug. 5, at 10 a.m. EDT.
Davidson Kempner Capital Objection
Davidson Kempner Capital Management, a beneficiary of the Motors Liquidation avoidance action trust and a general unsecured creditor of the debtors, submitted an objection on Friday afternoon to the joint motion of the avoidance action trust, or AAT, and the official committee of unsecured creditors to approve the settlement with the debtors’ DIP lenders. The objection charges that the bankruptcy court lacks jurisdiction to make a determination on the motion and that “the price the Committee is inexplicably willing to pay for the DIP Lenders’ loan - 30% of any recovery in the Allocation Dispute - is well beyond the range of reasonableness.”
The objection follows and builds upon the limited objection filed by River Birch, which argued that a permitted alternative funding event has not occurred under the Private Litigation Funding Agreement with the AAT and warned that approving the proposed settlement with the DIP lenders could lead to breach of contract claims against the AAT.
With respect to Davidson Kempner’s objection, the filing contends that, as preliminary matter, the bankruptcy court lacks jurisdiction over the underlying allocation dispute and therefore the court “should not even engage in a determination of whether the proposed settlement is appropriate until such time as there is a justiciable case to settle.” According to the objection, Judge McMahon’s ruling effectively put the allocation dispute “on hold” until resolution of the term loan avoidance action, precluding the court from exercising jurisdiction over the joint motion.
The filing further asserts that even if the court were to have the authority to make a determination on the proposed settlement, the court should deny it because the administrator and committee fail to demonstrate that they “bear[] a substantial enough risk of losing a re-litigation of the Allocation Dispute (which it already won) to justify giving up 30% of general unsecured creditors’ recoveries” under the term loan avoidance action and “potentially agreeing to give the DIP Lenders a windfall of more than 50% of what they are owed.”
Echoing the cost concerns previously raised by River Birch, Davidson Kempner contends that the proposed settlement could leave the AAT beneficiaries “worse off by up to hundreds of millions of dollars, with the only benefit being that the DIP Lenders would agree to settle the Allocation Dispute, even though those claims have already been decided in the Committee’s favor” (emphasis added).
To illustrate this point, Davidson Kempner prepared the following chart, which compares, at various amounts, (i) the 30% recoveries that the DIP lenders would receive under the proposed Litigation Cost Advance Agreement and (ii) the fees/recovery that it would receive under the Private Litigation Funding Agreement:
The objection charges that the committee and AAT “are settling this matter without clearly understanding the quantum of what they are giving up,” as they have failed to set forth their position on the amount of potential distributions that general unsecureds could obtain through litigating the allocation dispute.
The hearing on the joint motion is scheduled for Friday, Aug. 5, at 10 a.m. EDT.
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