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Chrysler - auto restructuring initiative

From the Obama administration' auto restructuring initiative (emphasis mine):

Chrysler’s largest secured creditors have agreed to exchange their portion of the Company’s $6.9 billion secured claim for their pro-rata share of $2 billion in cash at closing. The Bankruptcy Court process will be used to confirm this treatment on those lenders that failed to accept the offer that was accepted by a majority of the lenders (important when you realize that Under section 1126(c) of the Bankruptcy Code, an entire class of claims is deemed to accept a plan if the plan is accepted by creditors that hold at least two-thirds in amount and more than one-half in number of the allowed claims in the class.)

The newly reorganized Chrysler will purchase substantially all of the assets of the old Chrysler out of a chapter 11 bankruptcy case in exchange for a $2 billion payment to its secured lenders.  (The 363 sale we have been promised in GM.)

Working capital: The U.S. government is prepared to provide approximately $3.3 billion in debtor in possession financing to support Chrysler through an expedited chapter 11 proceeding.

Loan to the New Chrysler: Upon closing, the U.S. government is prepared to loan approximately $4.7 billion to New Chrysler, in the form of a term loan with $2.1 billion due in 30 months and the balance 50% due on the 7th anniversary and 50% due on the 8th anniversary of the loan. The interest will be an appropriate combination of cash and payment-in-kind. There is also an additional note of $288 million which is a fee for making these loans. The loans will be secured by a first priority lien on all of Chrysler’s assets. (Could the 7-8 yr loans be because it will take that long to forget the beating lenders took - what happens when banks aren't influenced by TARP?)

While many stakeholders made sacrifices and worked constructively in this process, some did not. In particular, a group of investment firms and hedge funds failed to accept reasonable offers to settle on their debt. In order to effectuate this alliance without rewarding those who refused to sacrifice, the U.S. government will stand behind Chrysler’s efforts to use our bankruptcy code to clear away remaining obligations and emerge stronger and more competitive. (Translation:  these pesky buggers actually thought they had legal rights and the ability to negotiate in good faith.)


Well, its as expected.  This could help give insight into the GM situation, but that will be complicated by the pesky $26B in unsecured holders.


Disclosure:  no positions