Chrysler's Response to Indiana Pension Funds 5 comments
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Amusing PR from Chrysler, in which the company tries to justify the presumably crappy outcome that those pushing for liquidation would get as a result of the "lack of bids" during the less than month long bankruptcy. Maybe Chrysler can also explain how any potential bidders were supposed to complete due diligence in the whopping week or so they had in order to outbid Fiat (FIATY.PK) in its stalking horse bid, which additionally had the blessing of the administration with a whole lot of taxpayer funded debt that will be eliminated subsequent to Good Chrysler's emergence. Maybe instead, Chrysler can provide some more color on the funding proposals that, under cross examination, emerged it had been pursuing. Zero Hedge reported about these, which emerged at the May 5 court hearing, and I quote:
What is notable is that during a witness testimony in court today, a Chrysler staffer under oath said that Chrysler had previously been in discussions with Nissan, GM and Fiat for alternative value enhancing programs, which had a Net Present Value of $11 Billion, $36 Billion and 4 Billion, respectively.
Instead Chrysler tries to back the Indiana State Treasurer into a corner where he is supposed to realize that he is getting the best possible deal for himself and anyone involved, as, of course, the loaded gun at the temple of the populist apocalypse that would ensue in the case of a liquidation would imply that both Old and New Chrysler are likely worth $0 or less.
Chrysler LLC Statement in Response to Indiana State Treasurer Protesting Chrysler LLC's Chapter 11 Proceeding and Sale
AUBURN HILLS, Mich., May 25 /PRNewswire/ -- Indiana State Treasurer Richard Mourdock is protesting Chrysler LLC's Chapter 11 proceeding and sale on behalf of three state pension funds that he oversees.
Chrysler strongly believes Indiana Treasurer Mourdock's position is wrong. Satisfying the Indiana Treasurer's demands would lead to the liquidation of Chrysler, resulting in the loss of more than 4,000 Chrysler jobs and 9,000 retiree pensions in Indiana alone.
The combined Chrysler-related investments in the three state pension funds in question totaled approximately $17 million. The cumulative loss on these investments under the proposed transaction would be approximately $2 million. Chrysler's liquidation analysis shows first lien lenders would get between zero and 18 cents on the dollar in liquidation, versus 29 cents in the proposed transaction. However, Chrysler believes this range is unlikely and that there is low probability of a high-side outcome. The company believes it is more likely to be on the very low end, as for the entire time that Chrysler has been in Chapter 11, it has had very few bids for its assets. Thus, under a liquidation scenario, the loss to Chrysler's employees, suppliers and dealers would be far more: in the tens of billions of dollars.
Treasurer Mourdock has expressed that he takes his "oath of office and fiduciary responsibilities very, very seriously." Chrysler believes Treasurer Mourdock is risking significantly further loss, and would be living up to his fiduciary responsibilities by accepting the terms that 98 percent of other creditors accepted. The Treasurer's actions lead one to wonder if his motives are financial or political.
Chrysler is committed to supporting its operations in Indiana, where more than $150 million are paid annually to Chrysler employees, $20 million in state taxes are paid by Chrysler employees, $3 billion of materials are purchased from more than 200 Indiana-based suppliers, and approximately 3,750 people are employed at 75 Chrysler dealerships. Additionally, Chrysler has donated more than $6.5 million to non-profit and community organizations in Indiana statewide in the past 10 years.
Important facts to note:
The three funds Treasurer Mourdock oversees are:
- Indiana State Teachers Retirement Fund - This is a reported $7.8 billion fund. The Chrysler debt is less than 1 percent of the fund ($32.2 million or .466 percent of Chrysler first lien debt)
- Indiana State Police Pension Trust - This is a reported $250 million fund. The Chrysler debt is less than 1 percent of the fund. ($1.3 million or .019 percent of Chrysler first lien debt)
- Indiana Major Move Construction - This is a reported $2.5 billion fund. The Chrysler debt is less than 1 percent of the fund ($8.8 million or .128 percent of Chrysler first lien debt)
-The combined Chrysler debt to the three funds is $42.3 million (.6 percent of Chrysler's first lien debt)
-While the three funds have a face value of $42.3 million, the purchase price was approximately $17 million. We expect they will receive $15 million, for a total investment loss of $2 million.
-Under Chapter 11, Chrysler's first lien creditors were allocated $2 billion (instead of the $7 billion in original debt). Ninety-eight percent of the first lien creditors have agreed to this allocation.
-The Indiana Treasurer is willing to put Chrysler in liquidation over less than 1 percent of the three funds assets.
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It screwed up its creditors (surely investors will line up in 30 days to flood Chrysler with money)
It badly screwed up its distribution network by asking the dealers to take on excessive inventory to help saving the company, and then sending them separation letters without reimbursing or taking back the inventory it asked dealers to beefed up
It decided not to pay suppliers, while requesting them to "share the risk" by providing parts on a credit
And finally, it screwed up everyone who bought Chrysler by terminating warranty, bouncing lemon cheques (yeah, we know that Chryslers never break, right) and basically treating customers just as well as the dealers (just buy a Chrysler, then we will surprise you)
Those who sat on the sidelines are clearly not motivated to pick up a spanking-new Chrysler, even after it emerges from the bankruptcy. Losing potential customers, alienating existing clients, destroying distribution network, cheating investors, suppliers and dealers - that's not the best way to start a prosperous business anew. At this point, I am starting to believe that it could be better if it just died. Having had 5 generations of Chrysler minivans, I have no intentions of buying another vehicle from Chrysler
Regarding the article, this is a dangerous game people are playing with the Constitution. The business contracts MUST be honored, or the value of all contracts goes down. This is like the WorldCom scandal, which eroded the value of practically the entire country.
Honor and reputation and rule of LAW have to exist, even if that means putting Chrysler through liquidation. It will just be split up and sold off anyway.
Bankruptcy Judge Gonzalez's factual findings in his opinion clearly say that the 3 Indiana Pension Funds are merely bond holders, who purchased bonds covered by master bond documents which very clearly say that the TRUSTEE of the bond fund is the holder of the security interest in or lien on the Chrysler assets and that ONLY THE TRUSTEE may make decisions concerning the bonds and dealings with Chrysler.
That simple information is well known to any competent lawyer who has ever looked at corporate bond documents. The ambulance chasers hired by the 3 Indiana Pension Funds, White & Case, well know that fact, even if the State Treasurer of Indiana does not.
If the Indiana State Treasurer had consulted Notre Dame law professors who teach "corporate finance", they would have told him the Pension Funds had "contracted away their rights to object" when they bought the $42 Million in Chrysler bonds. They would have told him that fact is true with respect to EVERY bond the pension funds purchase on the open market.
In this case, the Chrysler bond trustee APPROVED sale of the assets to "New Chrysler" because the trustee concluded that the bond fund receiving $2 Billion paid by "New Chrysler" was far more money than the bond fund would receive if the company's factories were sold off, one by one, in liquidation. In large part, the bond trustee reached that conclusion because other than Fiat, no one else wanted Chrysler's factories, equipment and brands. The bond trustee accepted Chrysler's senior officers testimony that they had spent 18 months looking for a buyers or a new equity investor, and none existed.
The judge should have simply told the lawyers for the Indiana Pension Funds to shut up and sit down. Doing so would have saved the taxpayers of Indiana a lot of wasted attorneys fees.
Instead, out of courtesy, he gave the Indiana Pension Funds the "due process rights" which they had contracted away. He let the lawyers for the Pension Funds speak, in court, for 36 hours over 3 days. At an attorney's billable rate of $500+ per hour. On top of those attorneys fees, a White & Case lawyer representing the Pension Funds told the judge, in writing, that the Pension Funds also had spent attorneys fees on the taking of 34 depositions and that 30 lawyers were reviewing over 100,000 Chrysler documents, in both cases at $250 to $500+ per hour of lawyer time. Those attorneys fees were also being paid by the Indiana taxpayers.
Of course, I should mention that the leader of the lawyer clowns is a Republican talking head, the same man who went on the talk show circuit and claimed that the White House "threatened his clients", before he lost the first round of hearings in bankruptcy court, and his clients decided not to pay for his services any more. So the lawyer-clown then went out and drummed up another client (aka sucker), this time the State Treasurer of Indiana, who also happens to be a Republican seeking higher office
As a result, Indiana taxpayers paid hundreds of thousands of dollars for this lawyer-clown to run up attorneys fees on a claim where the Indiana Funds had "signed away" their right to oppose and assigning away their right to speak in court, with the bond trustee being the only holder of that right to speak. And the bond trustee with the right to speak had formally said, in court, "29 Cents on the Dollar" is the best you bond holders are going to get.
If you looked at the pleadings written and filed by the lawyer-clowns, on behalf of the Indiana Pension Funds, you'd see political rhetoric which doesn't belong in Bankruptcy Court documents. Too bad, Indiana taxpayers. You are paid a very expensive NY law firm to write this drivel, and now you are going to pay for these same lawyer-clowns to appeal.
I certainly hope the press and good government advocates in Indiana keep track of the dollar amounts of taxpayer money spend in this Chrysler case, and let everyone know about this frivolous use of their tax money.
And I certainly hope the State Treasurer of Indiana isn't suckered into paying this same law firm, or any law firm, to pursue similar frivolous claims in the GM bankruptcy, assuming that some Indiana funds own GM bonds as well.