Auto Workers Essential to GM's Future Said to Win Out Over Bondholders

[Purveyor]

By Jeff Green and Caroline Salas

April 15 (Bloomberg) -- A United Auto Workers union retiree health-care fund probably will get preferential treatment over other unsecured claims in a General Motors Corp. bankruptcy or restructuring, people familiar with the plans said.

GM needs a cooperative union to build its vehicles once it reorganizes, giving workers more leverage than other claimants, said the people, who asked not to be identified because plans aren’t set. GM is seeking cuts in labor costs and debt to keep $13.4 billion in U.S. loans and win more aid.

“The bondholders are getting excoriated in the press as the evil people that are holding up the process,” said Evan Flaschen, chairman of the financial restructuring group at Bracewell & Giuliani LLP in New York, who isn’t involved in the case. “It’s easy to cast them in a bad light versus the employees you need to run the business going forward.”

At stake is the future of $20.4 billion in health-care obligations for about 522,000 GM workers, retirees and dependents and $27.5 billion in unsecured claims from thousands of bondholders including institutional investors such as university endowments, insurers and pension funds.

The Obama administration said last month that GM’s plan to return to profit wasn’t aggressive enough and ordered new Chief Executive Officer Fritz Henderson to cut $47 billion in unsecured claims by more than the 59 percent the Detroit-based automaker proposed in February.

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