The company’s bankruptcy, which disbanded shareholders and left taxpayers with billions of dollars in losses, is now turning out profitable for some hedge funds placed a bet on an obscure GM debt issued in the Canadian province of Nova Scotia.
A settlement deal that was signed last week would tentatively give Fortress Investment Group LLC, Elliott Management Corp. and other holders of stakes in GM Nova Scotia notes around $1.55 billion in a bankruptcy claim on a previous $1.07 billion in debt. The holders of the debt earlier had already been given $367 million in cash.
If the settlement would receive approval, the hedge funds holding the notes could gain close to 1.8 times the recovery they were entitled to, in a strange and unusual departure from the usual bankruptcy norm – you can recover what you lost, nothing else.
The settlement is actually a compromise reached after the initial deal the funds signed in negotiations that previewed the 2009 bankruptcy of General Motors, that actually would have given the Nova Scotia note holders, among them Appaloosa Management LP and Aurelius Capital Management LP, almost three times the recovery of other creditors.