GM pays $50 mln to end lawsuit over 2009 hedge fund deal

Tue Oct 1, 2013 12:58pm EDT
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* Mediated settlement removes risk of $918 mln impact on GM

* Hedge funds agree to reduce claims against "Old GM"

* Deal needs court approval by U.S. Bankruptcy Court in Manhattan

Oct 1 (Reuters) - General Motors Co has agreed to pay $50 million to end long-running litigation over a secretive deal that was struck on the eve of the automaker's 2009 bankruptcy that critics said favored hedge funds.

The agreement ends complex litigation in which hedge funds affiliated with John Paulson and Paul Singer's Elliott Management agreed to reduce the amount they said they were owed in the bankruptcy of "Old GM." The agreement was reached on Friday.

GM had warned the litigation could put it on the hook for $918 million. That threat was removed by the settlement, which still needs to be approved by the U.S. Bankruptcy Court in Manhattan at a hearing scheduled for Oct. 21.

The litigation was brought by a trust that was set up to uncover money for creditors who were shortchanged by the 2009 bankruptcy of GM.

The trust sued GM and the hedge funds in 2012, attacking a deal that was struck as the automaker was filing for bankruptcy. Under the deal, the hedge funds agreed to waive their claims of more than $1 billion owed to them by a Nova Scotia unit of GM in return for $367 million.

The deal was meant to keep GM Canada out of insolvency, which would have complicated the snap sale of the best assets to General Motors Co. Also known as "New GM," the company returned to the stock market in 2010 while unwanted factories and equipment were liquidated for the benefit of creditors.   Continued...