Some Thoughts on the Chrysler Bankruptcy and Supreme Court Stay 17 comments
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Just A few Quick Things:
- It's unlikely that the whole court will take the case, but if it does--the government will likely lose.
- I think if expediency was not an issue this case would be a slam dunk loss. However, when you examine issues such as what happens to the business from the alternative it adds uncertainty to what the justices might do. Other than that, there is no question that treating subordinated creditors so much more attractively than senior secured pretty much tosses out 150 years of bankruptcy law.
- One could easily argue that the TARP banks are in effect a separate class and their vote for the plan should be judged separately from lenders that don't have government ownership stakes
- The Fiat portion of the deal made no sense from the beginning. I have yet to see any documentation that validates or supports Fiat (FIATY.PK) getting any portion of Chrysler let alone 20%. I would much rather see Chrysler and GM (GMGMQ.PK) combine here.
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This article has 17 comments:
The damage of letting the sale go through unopposed is greater than the benefit of saving two lost causes. Loss of credibility in the corporate bond market could get be enough to send a fragile economy into a tail spin. Let's face it, the upside is two government owned car companies that will never make a profit.
If the investors lose, we all lose. Who would be in their right mind to ever, ever, ever provide capital to GM or Chrysler again? Fool me once, shame on you. Fool me twice, shame on me.
GM for one, will forever be government owned and sponsored here on out. As for the remainder of Corporate America? If you are a large employer and have union employment, beware of investing risk capital. At the very least, with all other things being equal, union employment means investors need much more premium on their risk capital.
That's the amount of money Indiana is haggling over in the billion-dollar Chrysler bankruptcy. It is money that Mourdock said should go to the pensions of cops and teachers, but the legal wrangling has already cost $2 million and thrown doubt on the government-brokered bankruptcy.
Mourdock's case was strengthened Monday when the U.S. Supreme Court called a timeout, but the first-term treasurer can't outrun the pointed criticism coming from autoworkers, Chrysler and the federal government, who fear delay will kill a sale to Fiat.
"I'm not doing this for attaboys. I'm not doing this for criticism," said Mourdock, a Republican from Evansville. "I'm doing this because I took an oath of office."
Indiana got into the fight because last summer the Indiana State Police Pension Fund, the Teachers Retirement Fund and the Major Moves Construction Fund bought $42.5 million worth of secured Chrysler bonds. The state paid 43 cents on the dollar for the bonds, a hefty discount that reflected how risky the bonds were, but it was a show of support for a company important to the state.
..."
www.indianalawblog.com/
It not like they were getting zero return.
In this economic environment they should be glad they're getting any money back at all. How many pension funds do you think have declined in the past 2 years.
Everyone has had to make sacrifices.
Also the idea that GM and Chrysler should combine is also ludicrous. You could compare it to two drowning people trying to save each other.
Arguably GM is in much worse condition. The government will own more than 75% of the General when its all said and done, compared to something like 8% of Chrysler.
Chrysler's autoworkers' VEBA has $10 billion in UNSECURED claims. They are receiving a promissory note for $4.6B and 68% of stock in reorganized Chrysler. Fiat's 20% stake is valued at $6.9B by Chrysler's CFO, meaning the VEBA gets $24B worth of stock. So they are getting $28.6B on a $10B UNSECURED claim.
Meanwhile, the SECURED creditors will get about 28 cents on the dollar for their bonds ($2B for their $7B worth of bonds). The Pensioners purchased $100M of those bonds at a discount because it was a risky investment. But the only reason anyone purchased anything was because it was SECURED against the company's assets.
This is in addition to treasury strong-arming private investors and throwing out decades of contract & property law. How is someone wanting what is legally theirs selfish as compared to the autoworker's VEBA getting 280% of their UNSECURED claim?
On Jun 09 10:37 AM User 428344 wrote:
> So a creditor that ownes less than 1% of the entire company should
> get their money at the expense of hundreds of thousands of workers.
> This is selfish to the Nth degree
>
> It not like they were getting zero return.
There is much more at stake here than Chrysler. There is a fraction of a difference between Obama's actions and Putin putting a gun to the head of a factory owner to order an unprofitable aluminium factory to open to provide workers jobs.
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The answer is a resounding "YES". The bondholders held secured debt. The UAW is getting a big payday courtesy of BHO in return for union support for his coronation. The UAW retiree health care fund held unsecured debt that was moved by the BHO team ahead of the secured creditors in the "reorganization". While the UAW is getting the mine, the smaller, non-TARP secured creditors and taxpayers are getting the shaft.
I also wonder if recent (or future) interest rate increases will include additional risk premium for secured creditors no longer having full legal protection of the law if the executive branch wants to ram rod and bully their wishes.
GM or "Fia-chrysler"? The first is a gov,t-Demo-gogue-owned (please don't say "tax- payer", that's an insult to all of our collective intelligence) extension of left-winged collectivism. The second is a compilation of the worst of engineering and dependibility on both sides
of the Atlantic.
Until a year ago, I would not consider purchasing a "foreign" car despite their better track records. (See the last 10+ years of Consumer Reports evaluations). Due to the antics of the UAW and GM(-ismanagement), I will not purchase another of their derelicts; despite now personally owning three. Hope I can find replacement parts!