Dissenting bondholders argue against GM asset sale

* Bondholder group asks Judge to call government's bluff

* GM seeks court approval for sale

* Bondholders: GM would be first Chap. 11 nationalization

By Emily Chasan and Phil Wahba

NEW YORK, July 2 (Reuters) - A group of dissenting
bondholders told a U.S. bankruptcy judge on Thursday that
General Motors Corp's GMGMQ.PK proposed asset sale to the
government should be blocked because it is not "a genuine
sale."

Calling GM's sale the first attempt at a "Chapter 11
nationalization," Michael Richman, a Patton Boggs bankruptcy
attorney representing the group of dissenting GM bondholders,
said the U.S. government had been "overbearing" in its rescue
of the automaker and was circumventing the law.

GM was in U.S. bankruptcy court in Manhattan on Thursday to
seek approval from Judge Robert Gerber for a proposed sale of
its best assets to a "New GM" funded by the U.S. government.

Over the course of the three-day hearing, the company's
lawyers, CEO Fritz Henderson, and a senior member of the Obama
administration's autos task force have argued that the sale is
GM's only option for survival.

If the deal is approved, New GM plans to be a company that
would have the best parts of the old company, a less-expensive
workforce and much less debt.

The "old GM," which would include unpopular brands and
unneeded factories, would be liquidated in bankruptcy court.

But Richman, representing a group that calls itself the
"Unofficial Committee of Family and Dissident GM Bondholders,"
argued that the sale had not been negotiated as a legitimate
sale to an independent party.

Instead, he said the government determined what would be
needed to make a "settlement offer" to "favored parties" and
then it decided on the price of the sale on the back end of the
negotiations.

Richman said "it's not credible" that the U.S. government
would turn on GM after providing the company with billions of
dollars in support. He asked the judge to "call the bluff" that
the government would walk away from the automaker if a deal is
not closed by July 10.

"The government came to GM with a financial rescue, not to
buy assets," Richman said.

The bondholder group has proposed GM pursue a fast-track
traditional Chapter 11 reorganization plan, in which creditors
would be entitled to vote, rather than the proposed asset
sale.

GM is asking Judge Gerber to approve the sale just one
month after filing for Chapter 11 bankruptcy, as no other
bidders have come forward to offer an alternative.

Under the terms of the deal, the U.S. Treasury would
provide $60 billion in financing to the new company, including
a proposed $50 billion that would give the U.S. Treasury a 60
percent stake in the company.

The United Auto Workers union would gain a 17.5 percent
stake; the Canadian government would own about 12 percent, and
GM bondholders are expected to obtain about 10 percent of the
new company.

A successful sale of GM's main assets would be the second
big victory for the Obama administration's auto task force. It
helped broker the sale of Chrysler LLC to a group led by
Italy's Fiat SpA (FIA.MI) last month.

The case is In re: General Motors Corp, U.S. Bankruptcy
Court, Southern District of New York, No. 09-50026.
(Reporting by Emily Chasan and Phil Wahba, editing by Matthew
Lewis)