Hedge Funds Settle Lawsuit Stemming From GM Bankruptcy

Hedge funds and some other creditors of the former General Motors have struck a deal over a $367 million payout to the funds in 2009.

A trust representing "old" GM's unsecured creditors, the successor to Motors Liquidation Co., agreed to drop their lawsuit against the funds in exchange for those funds dropping $1.13 billion in claims against the old GM estate. The four hedge funds include Elliott Management, Fortress Investment Group and Paulson & Co.; Appaloosa Management and Aurelius Capital Management, which took part in the 2009 deal, sold their bonds and were not involved in the litigation.

In addition to getting to keep the $367 million, the hedge funds also received $50 million from the "new" GM.

The 2009 deal was designed to keep GM Canada out of bankruptcy. GM Canada borrowed the money from old GM and then paid the hedge funds. The trust argued that the deal should have been canceled under bankruptcy law.

The settlement goes before a federal bankruptcy judge on Oct. 21.