Out of Canada "Financial Post" May 22, 2009

General Motors of Canada Ltd. was hatched in the early 1900s when a farmboy named Sam McLaughlin sent a telegram to an old pal in Michigan asking if he could borrow an engineer to make plans for horseless carriages after his own engineer fell ill. That pal was GM Corp. founder Billy Durant.

Today, the ties that bind the company to the United States may prove too inextricable to unwind, forcing GM to file for bankruptcy protection in Canada as well as the United States as early as next week.

Unlike Chrysler LLC, whose Canadian arm did not seek creditor protection in Canada while its parent company did in the United States, GM may file in both countries for several key reasons that include its size and corporate links between the two countries.

Industry and legal sources note the automaker is larger than Chrysler operationally and has a more complex capital structure, which make it more difficult to disentangle Canadian operations from a GM Corp. filing in the United States. For example, the firm operates two units -- General Motors Nova Scotia Finance Co. and General Motors Nova Scotia Investments Ltd. -- incorporated specifically to make loans and issue debt in Canada. Detroit-based GM Corp. is the sole shareholder of those units.

"In a close parent-subsidiary relationship, a cross-border filing will be inevitable," said Jacob Ziegel, a law professor at the University of Toronto.

Prof. Ziegel said that aside from Chrysler, "I don't know of any major insolvency involving a parent company and a subsidiary in both Canada and the U. S. where there haven't been proceedings in both jurisidictions."

The number of GM stakeholders just makes it extremely difficult to restructure outside of court, added Vern DaRe, a bankruptcy lawyer with Gardiner Roberts LLP in Toronto who has written on cross-border reorganizations. "They're spread across North America."

Legal claims against the company are another big issue. And one lawsuit in particular may prove to be a pest GM wants off its back as it works to reinvent itself.

New York investment firm Aurelius Capital Partners LP and eight other firms holding more than $659-million in GM bonds in March sued GM, the two Nova Scotia-based subsidiaries and three of the automaker's executives alleging oppression over two transactions in which almost $600-million was transferred out of Canada to bolster GM's operations in the United States.

The bondholders argue in documents filed with a Nova Scotia court that the transactions were carried out at a time when GM was "either insolvent or on the brink of insolvency" and stripped cash out of the companies that issued the notes. They argue that in turn put at risk the ability of the GM subsidiaries to make good on note payments. They are asking the court to reverse the transactions.

GM denies the claim, arguing the transfer is simply a return of paid-up capital owed to the U. S. parent, and the move had the "consequence of fortifying, not harming," the ability of GM to meet the obligation of noteholders. The automaker argues the bondholders have not suffered any losses.

When filing for bankruptcy protection under Canada's Companies Creditors' Arrangement Act, the court would immediately freeze all lawsuits against GM, including the bondholder case. The bondholders could then ask the court to lift the stay and order a fast trial to consider the matter. But that would not be guaranteed.

GM is widely expected to file for bankruptcy protection in the United States by June 1, the deadline the Obama administration gave the automaker to secure new labour deals and wipe out US$44-billion in debt owed to bondholders, the U. S. Treasury and a union-run retiree medical fund.

Tony Clement, Canada's Industry Minister, said his government is working on a comprehensive plan for the automaker that touches operations in both countries. He declined to say whether that includes a Canadian bankruptcy filing.

"It's not good to have Cabinet ministers speculating on bankruptcies on tradeable stocks," he said. "There is a plan we're working on and we'll have something to say within a few days."

On Thursday, the United Auto Workers, GM's main union, said it struck a deal with GM to modify its labour contract. Yesterday, GM struck a new labour pact with the Canadian Auto Workers union by which factory workers will contribute to their pensions.

The automaker is lining up those key concession deals so it can go through a bankruptcy reorganization as quickly as possible.

The final piece of the puzzle that would have to be in place to avoid a U. S. bankruptcy filing is an agreement with bondholders to swap US$27-billion of debt for a 10% stake in the reorganized automaker.

Based on the vocal opposition by some bondholders to the offer, observers say it has little chance to succeed. GM has said it would likely file for bankruptcy unless 90% of the US$27-billion owed is extinguished.

Chrysler LLC is already in bankruptcy protection and hopes to exit by the end of June.

GM shares dropped 25% to close at US$1.43 in trading on the New York Stock Exchange yesterday. They have fallen 55% this year.

Lance Haynes

Where Are You From? www.lancedurant.com & www.hireoldcars.com

Do You own a car built by Durant? Many

Lance,

Welp, is this Sam McLaughlin the same guy that they named the Buick Mclaughlin after? If so I don't feel quite so bad getting beat out of first place by a '31 Mclaughlin at the Penticton car show last June.

Bill

Where Are You From? Leavenworth, WA / Yuma, AZ

Do You own a car built by Durant? 1923 A-22 Touring, 1929 Durant model 40 Coupe

Bill you got it my friend. Yes yes yes.
Under the guidance of "Colonel" Sam McLaughlin, in 1907 the company began the manufacture of automobiles, eventually forming an alliance with William C. Durant, who had acquired the Buick Motor Company, that later would become General Motors.

During their first few years of operation, the automobiles were known as "McLaughlins". The name was changed to "McLaughlin-Buick" until 1942, after which the McLaughlin name was dropped, leaving the "Buick" marque still in use today. Until 1914, the cars were finished with the same paints and varnishes used on carriages. This meant each vehicle required up to fifteen coats of paint. McLauglin revolutionized the industry[citation needed] with their painting process.

In 1918, the McLaughlin family sold their interests to General Motors, but Sam McLaughlin would continue to run the company in his capacity as chairman of the board of General Motors of Canada, in addition to being vice-president and director of the parent company.

Lance Haynes

Where Are You From? www.lancedurant.com & www.hireoldcars.com

Do You own a car built by Durant? Many