3. Net Assets in Liquidation

Description

Under the GUC Trust Agreement and the Plan, as described more fully in Note 1, the beneficiaries of the GUC Trust are future and, to the extent their liquidating distributions have not yet been paid to them, current holders of Allowed General Unsecured Claims and future and current holders of GUC Trust Units. Assets of the GUC Trust consisting primarily of Distributable Cash (including Dividend Cash) as described in Note 1 are available to be distributed to the Trust Beneficiaries (“GUC Trust Distributable Assets”) in accordance with the Plan and the GUC Trust Agreement, except to the extent that they are set aside or appropriated for funding the expected costs of liquidation of the GUC Trust. The amounts of net assets in liquidation presented in the accompanying Condensed Statements of Net Assets in Liquidation correspond to the amounts of GUC Trust Distributable Assets as of the respective dates, after certain adjustments including reductions for the amounts of set-aside Distributable Cash and appropriated Distributable Cash. As of December 31, 2018, GUC Trust Distributable Assets aggregated approximately $457.9 million. For additional information, see “Net Assets in Liquidation—Distributable Assets” in Item 2 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) below.

Cash and Cash Equivalents and Marketable Securities

As of December 31, 2018, cash and cash equivalents and marketable securities aggregated $504.6 million and are comprised of the following:


(in thousands)
Distributable Cash (including associated Dividend Cash)			$ 484,477
Other Administrative Cash			18,583
Administrative Fund			1,279
Residual Wind-Down Assets			174
Funds for Indenture Trustee / Fiscal Paying Agent Costs			136

Total			$ 504,649

As described in Note 4, as of December 31, 2018, the GUC Trust had accrued liquidating distributions payable aggregating $1.8 million. In addition, as described in Note 2, as of December 31, 2018, the amount of Distributable Cash reflected in the table above includes $24.8 million of amounts set aside for projected GUC Trust fees, costs and expenses to be incurred beyond 2018. The aggregate amount of Distributable Cash which was pending distribution or was set aside and was not available for distribution as of December 31, 2018 was $26.6 million.

Accrued Investment Income on Cash Equivalents and Marketable Securities

As of December 31, 2018 and March 31, 2018, the GUC Trust had accrued approximately $34.1 million and $16.7 million, respectively, of investment income on marketable securities and cash equivalents expected to be earned over the estimated remaining liquidation period in accordance with the liquidation basis of accounting. Such accrual is estimated principally based on forecasted cash outflows and expected returns based on recent yields on U.S. Treasury bills in which the marketable securities are invested. During the quarter ended December 31, 2018, such accrual was increased by approximately $11.4 million primarily due to a reduction in expected distributions associated with Term Loan Avoidance Action Claims as a result of the settlement in principle of the Term Loan Avoidance Action described in Part II, Item 1 (“Legal Proceedings”). An extension in the estimated length of time for resolution of litigation involving certain General Motors vehicle recalls described in Part II, Item 1 (“Legal Proceedings”) and a corresponding extension in the expected date to make distributions in respect of GUC Trust Units, along with recent increases in yields on U.S. Treasury bills, in such quarter also contributed to the increase in such accrual. During the nine months ended December 31, 2018, such accrual was increased by approximately $17.4 million due to the following: (a) net extensions in the estimated length of time for resolution of the aforementioned litigation involving certain General Motors vehicle recalls and corresponding net extensions in the expected date to make distributions in respect of GUC Trust Units, (b) a reduction in expected distributions associated with Term Loan Avoidance Action Claims during the quarter ended December 31, 2018 as a result of the aforementioned settlement in principle of the Term Loan Avoidance Action and (c) increases in yields on U.S. Treasury bills in such nine-month period. Such accrual, along with receivables for investment income earned as of December 31, 2018 and March 31, 2018, is included in Accrued Investment Income in the accompanying Condensed Statements of Net Assets in Liquidation.

Expected Reimbursement of Funds Transferred to the Avoidance Action Trust

Upon its dissolution on December 15, 2011 and pursuant to the GUC Trust Agreement, MLC transferred to the Avoidance Action Trust cash of $0.5 million to be utilized for certain expenses if incurred. To the extent the funds are not utilized, they are required to be repaid to the GUC Trust. As of December 31, 2018, such remaining funds held by the Avoidance Action Trust are approximately $0.4 million and are expected to be paid to the GUC Trust by the Avoidance Action Trust upon its dissolution. Such expected repayment has been accrued as of December 31, 2018 and is included in Other Assets in the accompanying Condensed Statement of Net Assets in Liquidation.

Accrued Expected Reimbursement of Legal Fees

During the quarter ended September 30, 2017, the GUC Trust entered into an agreement with New GM providing for, among other provisions, reimbursement of certain legal fees incurred as described in Part II, Item 1 (“Legal Proceedings”). While the terms of the agreement were subject to certain conditions, including Bankruptcy Court approval, at such time, the GUC Trust anticipated that the agreement would be consummated. Accordingly, the GUC Trust accrued approximately $1.5 million in expected reimbursements of legal fees at September 30, 2017. Such accrual was based on an estimate of the amount of reimbursements expected to be received if the agreement were consummated. Such estimate of expected reimbursements was based on reimbursable legal fees incurred and expected to be incurred through the then-expected date of consummation of the agreement. As a result of developments in the related litigation as described in Part II, Item 1 (“Legal Proceedings”), such accrual was reversed in the quarter ended December 31, 2017, due to uncertainties associated with consummation of such agreement.

Potential Distributable Capital and Net Operating Loss Carryovers

As described in “Critical Accounting Policies and Estimates—Income Taxes” in Item 2 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) below, the GUC Trust’s unused capital and net operating loss carryovers potentially could succeed to Claimants (as defined below pursuant to tax rules) upon the termination of the GUC Trust. Reference is made thereto for information regarding such potential distributable loss carryovers and the material uncertainties associated therewith.

Trust Units

As described in Note 1, under the Plan, each holder of an Allowed General Unsecured Claim retains a contingent right to receive, on a pro rata basis, additional Distributable Cash (if and to the extent not required for the satisfaction of previously Disputed General Unsecured Claims or Term Loan Avoidance Action Claims, or appropriation for the payment of the expenses or any tax liabilities of the GUC Trust). The GUC Trust issues units representing such contingent rights (“GUC Trust Units”) at the rate of one GUC Trust Unit per $1,000 of Allowed General Unsecured Claims to each holder of an Allowed General Unsecured Claim, subject to rounding pursuant to the GUC Trust Agreement, in connection with the initial recognition of each Allowed General Unsecured Claim.

The GUC Trust makes quarterly liquidating distributions to holders of GUC Trust Units to the extent that (i)(a) certain previously Disputed General Unsecured Claims asserted against the Debtors’ estates or Term Loan Avoidance Action Claims are either disallowed or are otherwise resolved favorably to the GUC Trust (thereby reducing the amount of GUC Trust assets reserved for distribution in respect of such asserted or potential claims) or (b) certain Excess GUC Trust Distributable Assets (as defined in the GUC Trust Agreement) that were previously set aside from distribution are released in the manner permitted under the GUC Trust Agreement, and (ii) as a result of the foregoing, the amount of Excess GUC Trust Distributable Assets (as defined in the GUC Trust Agreement) as of the end of the relevant quarter exceeds thresholds set forth in the GUC Trust Agreement.

During the three months ended December 31, 2018, there were no changes in the number of GUC Trust Units outstanding or which the GUC Trust was obligated to issue. Outstanding or issuable GUC Trust Units as of September 30, 2018 and December 31, 2018 aggregated 31,855,504.

Allowed and Disputed Claims

The total cumulative pro rata liquidating distributions ultimately received by Trust Beneficiaries is dependent upon the current amount of Allowed General Unsecured Claims and final resolution of outstanding Disputed General Unsecured Claims and Term Loan Avoidance Action Claims (as described in Note 2). Disputed General Unsecured Claims as of December 31, 2018 reflect a distribution “set aside” permitted by the Plan and the GUC Trust Agreement. As described in Note 1, prior to the resolution and allowance of Disputed General Unsecured Claims and Term Loan Avoidance Action Claims, liabilities are not recorded for the conditional obligations associated with Disputed General Unsecured Claims and Term Loan Avoidance Action Claims. Liquidating distributions payable are recorded in the amount of Distributable Cash (previously the fair value of New GM Securities) to be distributed as of the end of the period in which the Disputed General Unsecured Claims and Term Loan Avoidance Claims are resolved as Allowed General Unsecured Claims.

The following table presents a summary of activity with respect to Allowed and Disputed General Unsecured Claims and Term Loan Avoidance Action Claims for the three months ended December 31, 2018:


(in thousands)	Allowed General Unsecured Claims		Disputed General Unsecured Claims (1)		Term Loan Avoidance Action Claims		Maximum Amount of Unresolved Claims (2)		Total Claim Amount (3)
Total, September 30, 2018	$	31,855,432	$	50,000	$	1,494,843	$	1,544,843	$	33,400,275
Disputed General Unsecured Claims resolved or disallowed		—		—		—		—		—
Term Loan Avoidance Action Claims resolved or disallowed		—		—		—		—		—

Total, December 31, 2018	$	31,855,432	$	50,000	$	1,494,843	$	1,544,843	$	33,400,275

(1)

Remaining Disputed General Unsecured Claims represent a general claim contingency for any future disputed claims or other obligations of the GUC Trust. The GUC Trust has set aside from distribution an aggregate of $14.8 million for this general claim contingency (i.e., $296 in Distributable Cash per $1,000 of Allowed General Unsecured Claims, as provided in the Plan).

(2)	Maximum Amount of Unresolved Claims represents the sum of Disputed General Unsecured Claims and Term Loan Avoidance Action Claims.

(3)	Total Claim Amount represents the sum of Allowed General Unsecured Claims and Maximum Amount of Unresolved Claims.

As described in Part II, Item 1 (“Legal Proceedings”), the parties to the Term Loan Avoidance Action have reached a settlement in principle, subject to further documentation and approval of the Bankruptcy Court. The terms of this settlement are not yet publicly available. Pursuant to the settlement, the defendants to the Term Loan Avoidance Action will receive Allowed General Unsecured Claims.

Also as described in Part II, Item 1 (“Legal Proceedings”), the GUC Trust previously executed the Settlement Agreement with certain plaintiffs. If approved by the Bankruptcy Court, the Settlement Agreement would have provided for the Settlement Payment to such plaintiffs of $15.0 million, among other provisions. During the quarter ended March 31, 2018, the GUC Trust accrued a contingent settlement obligation of $15.0 million for the Settlement Payment. As a result of developments in the related litigation as described in Part II, Item 1 (“Legal Proceedings”), such contingent obligation was reversed in the quarter ended September 30, 2018, due to uncertainties associated with consummation of the Settlement Agreement. As described in Part II, Item 1 (“Legal Proceedings”), the Settlement Agreement was not approved by the Bankruptcy Court.