Chrysler's Non-TARP Lenders

A group that holds nearly $1 billion of Chrysler LLC loans said its offer to restructure the auto maker's debt has been "flatly rejected or ignored," even as the group claimed it offered to take a 40% reduction in value on the debt.

The group, made up of smaller organizations which invested in Chrysler, said it wants to see the company emerge as a viable entity and won't initiate a bankruptcy filing. It said that decision should be made by the company and the federal government.

The investors are calling themselves "Non-TARP Lenders," to distinguish themselves from the large banks that have agreed to the terms and "have received billions" from the government's Troubled Asset Relief Program, they say in the statement. Their comments come hours after the Obama administration said that the restructuring of Chrysler will go forward even though a handful of banks and hedge funds haven't accepted the offer. An administration official said the holdouts weren't acting in the national interest, the Wall Street Journal reported.

The "Non-TARP Lenders" also claimed that General Motors' (GM) senior secured lenders are being left with 100% of recoveries, and that GM's unsecured bondholders would receive a far better recovery than Chrysler's first-lien secured lenders.

The increased speculation of an eventual Chrysler bankruptcy filing came as Fiat SpA (FIATY.PK) and Chrysler reportedly reached an accord on a partnership deal ahead of Thursday's deadline.

The third-largest U.S. auto maker has been suffering under the steep drop in demand amid the economic recession and a shift in the market away from sport-utility vehicles that has hurt Chrysler and its Michigan peers, GM and Ford Motor Co. (F).

Earlier this month, Standard & Poor's Ratings Services warned that large parts of Chrysler would likely be broken up and sold off if it files for bankruptcy protection and said second-lien loan holders should expect payouts of 10% or less. First-lien loan holders can expect payments of 30% to 50%.

The implications of this are staggering. If one looks at the response to the unsecured holders of GM, it is easy to see that bankruptcy is all but certain. The article makes an interesting comment on the senior secured lenders at GM, something that doesn't get much press - the cuts are being borne by the bondholder, the UAW and the taxpayer (and the equity allocations hardly in line) - but not the senior lenders. Maybe that's why the bondholders have not been involved in any aspect of the negotiations.

Disclosure: no position

Comments

[Jack O.]

These issues are really annoying! Well all I can say is that bailing out car industry doesn't cause any good for the economy of America. The company received over $4 billion in installment loans to keep them afloat, yet it wasn't quite enough, so the company has filed for bankruptcy protection. General Motors is predicted to follow their lead. GM has already begun closing dealerships. Industry experts have predicted GM's bankruptcy filing for months, and now it seems all but inevitable. Hopefully the Chrysler dealerships closing will mean debt relief for the company, and a temporary condition from which Chrysler will recover.

2009 May 20 04:17 AM