GM bondholders prepare case against bankruptcy plan - WSJ

A General Motors logo is seen at a car dealership in Toronto December 12, 2008. REUTERS/Mike Cassese

NEW YORK (Reuters) - General Motors Corp’s bondholders are preparing legal arguments against the automaker’s bankruptcy plan, the Wall Street Journal reported on Sunday, citing people familiar with the matter.

A plan to split the corporation into a “new” company made up of the most successful units, and an “old” one of its less-profitable units, is seen as the most sensible configuration, a source familiar with GM’s plans told Reuters last week.

The Journal said bondholders are worried that the process will push them to accept hefty losses on their investments. It said members of an ad hoc committee representing GM bondholders have made their concerns known to the Obama administration’s task force.

The lead attorney representing the bondholders’ committee declined to comment to Reuters on the matter.

Ratings agency Standard & Poor’s last week cut certain debt ratings of GM and Chrysler Holding LLC, citing lower likelihood of recovery by their debtors in the event either carmaker defaults on the loans or files for bankruptcy.

In a separate article, the paper reported that GM faces a lawsuit in Canada from unsecured bondholders over dividends GM paid from a Nova Scotia unit last May to its U.S. operations.

The bondholders claim the company wrongfully pulled around $600 million from the Canadian subsidiary because company officials should have known the U.S. business was near insolvency, according to the Journal.

GM has said in court filings that the allegations are false and that it was acting within its rights, the report said.

A GM spokeswoman was not immediately available to comment.