A backroom deal hatched by General Motors during the auto bailout to fulfill the Obama administration’s demand for a quick bankruptcy could be reversed, draining the automaker of nearly all of its cash on hand and leaving it in worse shape than it was when it collapsed in 2009.

As GM teetered on the edge of bankruptcy in June 2009, it cut a $367 million “lock-up agreement” with several major creditors in order to prevent its Canadian subsidiary from going under. The move spared the subsidiary from fulfilling the $1 billion debt it owed the creditors -- major hedge funds -- ensuring that GM would not have to face bankruptcy courts in two nations, which could have delayed the company’s recovery.

The trustee for (old GM) creditors shortchanged by the government-driven bankruptcy are now suing the hedge funds in a move that could undo the bailout.

“Many US creditors waived their rights to object because the government wanted to push through the bailout for political reasons,” risk analyst Chris Whalen said. “If they had continued through normal channels, they could have easily been in bankruptcy for five years. So they made sure these issues were not adequately briefed before the court.”

The GM that exited bankruptcy was radically different than the one that entered. The Treasury Department arranged for the company to split into Motors Liquidation Co., known as “old GM,” and created a “new GM” with the help of $30 billion from American taxpayers. Judge Robert Gerber, who approved the sale with little hesitation, could now reverse the entire auto bailout -- and overturn one of Pres. Obama’s signature achievements.

“When I approved the sale agreement and entered the sale approval order I mistakenly thought that I was merely saving GM, the supply chain, and about a million jobs. It never once occurred to me, and nobody bothered to disclose, that amongst all of the assigned contracts was this lock-up agreement, if indeed it was assigned at all,” Gerber said in July.

Industry experts say GM should be very concerned with the judge’s reaction to the deal.

“The judge has made it very clear that he is greatly dissatisfied with the process,” one analyst said. “He’s basically implying that GM hid it from him and that reopening the sale is a possibility.”

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Editor's Note: Another disaster for the Obama campaign to deal with...of, wait, the mainstream media won't care and the Progressive voters don't give a damn...


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