GM Nova Scotia's noteholders hit the jackpot
The bankruptcy of General Motors Corp resulted in the wipeout of shareholder funds and forced taxpayers to shell out billions to keep the company afloat. Now, it is generating a new wave of profitmaking for hedge funds that expanded their claim through the purchase of an obscure pool of GM debt issued in Nova Scotia.
in a settlement finalized last week, Fortress Investment Group stands to receive, together with Elliot Management Corp and other GM Nova Scotia note holders a USD1.55 billion bankruptcy claim on USD1.07 billion debt. The same pool of noteholders had already received USD367 million in cash.
Should the settlement be approved, the Nova Scotia note holders would be receiving nearly twice the value of their recoverables from the US automaker together with other unsecured creditors. This would be a departure from bankruptcy norms, that one loss is entitled to one recovery.
This also is a compromise from an earlier deal the funds finalized during the last weekend of talks leading to the GM bankruptcy filing last January 1, 2009. The Nova Scotia noteholders saw that a US effort would brak down if the Canadian unit was put in bankruptcy. Thus, the use of the loophole in Nova Scotia law required to put that deal into place.