The company’s bankruptcy, which wiped out shareholders and left taxpayers on the hook for billions of dollars, is generating a new wave of profit for hedge funds that supersized their claim by betting on an obscure pool of GM debt issued in the Canadian province of Nova Scotia.
A settlement reached last week proposes giving Fortress Investment Group LLC (FIG), Elliott Management Corp. and other holders of GM Nova Scotia notes a $1.55 billion bankruptcy claim on $1.07 billion in debt. Holders of that same pool of debt had earlier received $367 million in cash.
If the settlement is approved, holders of the Nova Scotia notes could walk away with as much as 1.8 times the recovery in the U.S. automaker as other unsecured creditors. That would mark a rare departure from the bankruptcy norm – that one loss is entitled to one recovery.
The settlement marks a compromise from an initial deal the funds struck during the talks leading to the 2009 bankruptcy that promised the Nova Scotia note holders, which included Appaloosa Management LP and Aurelius Capital Management LP, close to three times the recovery of other creditors.
The settlement, which is up for approval on Oct. 21, stands to be the culmination of a complex and legally intense investment play that, for Fortress, dates to 2005.
) - Friday, October 4th, 2013 - filed under General Motors
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