Chrysler bondholders have officially rejected the Presidential Task Force on Automobiles’ (PTFOA) “offer” to exchange 85 percent of their secured debt ($6.9B) for a stake in a reconstituted ChyrCo. The Wall Street Journal reports the bondholders’ counteroffer: the lenders would cut Chrysler’s first-lien debt by $2.4 billion, in exchange for a 40 percent equity stake and a Chrysler board seat. Oh, and they want Fiat to put up a billion dollars. Which Fiat won’t do because . . . it doesn’t have it. The bondholders’ position sounds about right. Remember: this is secured debt. If/when Chrysler is sold off in pieces, the bondholders would recoup about 65 cents on a dollar. Settling for anything less would be against their financial interest. But not their political interest. Not only has the US Treasury rejected the bondholder’s proposal, they’ve cast aspersions on the banks’ patriotism. No, really.
“It is neither in the interest of Chrysler’s senior lenders nor the country for them to advance a proposal that would yield them an unjustified return as Chrysler, its employees and other stakeholders are working tirelessly to help this company restructure,” the Treasury said in a statement.
With just eight days left before ChyrCo’s latest restructuring deadline, this one’s getting seriously ugly. We hear rumors that Chrysler CEO Bob Nardelli is going to resign this week. And there’s plenty of talk from Motown politicians pressuring Chrysler bondholders to suck it up—or face the consequences.
Late Wednesday, Michigan Gov. Jennifer Granholm blasted the banks’ counteroffer, urging them to “do the right thing.”
“They need to collapse their debt as the Obama administration has asked to ensure the viability of the company, which is critical for the families, employees, retirees, dealers, suppliers and others who rely on it,” Granhom said. “To do otherwise is not only disappointing, it is unconscionable at best.”
U.S. Rep. Gary Peters, whose district is home to Chrysler’s Auburn Hills headquarters, called the banks’ offer “an affront to taxpayers” and Chrysler employees and retirees.
“These debt holders were offered fair market value for their debt and the banks have responded by asking for a windfall,” Peters said in a statement.
Windfall? As in undeserved profits? How long before someone trots out ye olde Jewish banking conspiracy? Like I said, real ugly.
Back to the Fiat deal, upon which President Obama so publicly staked Chrysler’s future. The bondholders’ billion dollar “put up or shut up” salvo against the Italians is really just a clever way of saying no freakin’ way.
The lenders also questioned the logic of having Chrysler pair up with Fiat. The Italian company, they said, would bring “negative synergies for the first 3 years” and would enter the alliance with “limited downside for a deal of this size.” Moreover, they said it could result in a “wealth transfer from the U.S. taxpayer to a foreign company of potentially $10 billion or more.”
I spit on you spitting on me for spitting on my country. Or something like that. And wouldn’t you just know it: the PTFOA is, as predicted here, happy to walk away from the $4 billion US taxpayers have already shoveled down the ChryCo rathole. And THEN toss them EVEN MORE money.
The counteroffer also came about a week after the government presented Chrysler lenders with more than 60 pages of financial assumptions for a combined, restructured Chrysler. The government projects that Fiat-Chrysler wouldn’t be able to start making payments on its debt until 2012, said several people familiar with the report.
The government also assumes that the $4 billion it lent Chrysler largely will be wiped out, as will a combined $2 billion Chrysler owes Cerberus Capital Management LP and Daimler AG, Chrysler’s last two owners. The government would then put in an additional $6 billion to fund the operations of Fiat-Chrysler.
Not to mention the $3 billion Uncle Sam would fork over to the United Auto Workers health care fund—cause that would be churlish. More on the unions in another post. Meanwhile, the WSJ saves the story’s most fascinating aspect for the end. It seems that ChyrCo bondholders’ are at war with each other, in a David and Goliath kinda way.
In the red corner: the nestling-in-the-pocket-of-the-feds crew: J.P. Morgan, Citigroup, Goldman Sachs Group Inc. and Morgan Stanley. In the green corner: a bunch of “little guys”: Elliott Management, Stairway Capital Management, OppenheimerFunds, Perella Weinberg Partners and three dozen of so relatively small lenders. Seems . . .
Not everyone was on the same page. The big bank view was “hey guys, the offer back can’t be outrageous. This is the government,” said one of these people. “There were others, smaller lenders, who wanted to be a lot more aggressive.”
In the end, the big banks “came closer to the smaller lender view,” said another person familiar with the talks.
What was that about a nation at war with itself? Anyway, C7 or boondoggle billions. We shall see.
If Chrysler were to announce their bankruptcy next week (be it Chapter 7 or 11), is the scenario of Ford and GM having to announce bankruptcy, as well, still valid?
If so, then, next week should be very interesting.
Bondholders don’t want to shift, UAW refusing concessions, CEO might be resigning and lower & lower confidence in the company.
Sounds like a masscare waiting to happen.
Having said all this, though, the BBC report that some banks are vying to get a stake in Chrysler, swapping their debt for equity.
http://news.bbc.co.uk/1/hi/business/8011611.stm
P.S. If any fancies a chuckle, then check this out. Made me laugh.
http://newsbiscuit.com/2009/04/22/clown-car-launched/
C7 and everyone gets what they deserve… no political correctness needed.
The risk of losing money was known to the bondholders when they bought the bonds, hence the high interest rate. I suppose most of today’s bondholders bought the bonds at less than a $ on the $ anyway. Hell, some of my 401k investments lost money, why would the government care about them but not about my investment?
that’s the bondholders.
The unions will get what they deserve too… unemployment or lower paying jobs. For years they made double the money than anyone else for doing the same work (or even less, jobs bank…). So instead of buying vacation homes and boats they could have saved up some of the undeserved money for the case of C7. After all, they saw the product first hand and must have known that it can’t be sold at a reasonable price.
Same for management… they will lose their jobs, but with the millions they made over the last years they should be fine off unless they bought super expensive houses and boats.
Let the games begin. Now that the Fed has played its’ hand, it’s time for the bondholders and the union to play chicken with the Obama admin. Can the union, who will lose thousands of jobs even in restructuring get a better deal by holding out, and winning plussed up benefits from the Gov? And will the Fed blink at the bondholders? I hope the admin. holds the line here. It will have an impact on GM11.
This is getting even more fascinating to watch. Both WSJ and NYTimes have interesting takes on it.
The banks and investors are getting this message from Washington that goes “Be responsible with your money because it’s our money.” They’re also getting this message from Washington “Take a big haircut.”
I think what the Treasury and the PTFOA is saying amounts to “Use taxpayer money to save jobs in Michigan, and thereby save votes.” They know that they can’t buy the votes directly, but they can by proxy with someone else’s money.
The NYTimes seems to think that Obama is gonna shake down Fiat for $1 billion that they don’t have so they can have 20 percent of Fiat. Isn’t that like Obama saying what’s left of Chrysler when this is over will be worth $5billion?
And even more interesting …. Chrysler’s UAW employees have until 4/27 to accept their buyouts. So I wonder how many of those folks have said, “If you were to insert a fork into my carcass, you would determine that I am, in fact, done.” That could be a big number of either non-believers or people who have been slurping too much Gettelfinger’s Home Grown Punch.
“It is neither in the interest of Chrysler’s senior lenders nor the country…”
I read this as a “Remember the AIG bonuses!” moment from PTFOA. It’s got nothing to do with patriotism, and everything to do with “Cover thine ass.”
Taxpayers are going to be even more p****d if the Chryco bailouts go towards anything other than improving the vehicle lineup and securing American jobs.
I’ve been wrong before. That said, I predict that the government blinks before the banks do. Government has more to lose. This administration has set a deadline, and with that deadline approaching, has a really hard choice to make. Does it have the guts to stop writing checks to Chrysler, thereby being directly responsible for putting all those UAW members on the street? I don’t think this administration is willing to do it. The feds will find another way. One way is to lend Fiat the billion bucks to do the deal. Then, it fails later, it is not Obama’s fault but Fiat’s.
“I spit on you spitting on me for spitting on my country.”
Actually my favorite Italian insult in response to Fiat’s attempt to steal US taxpayer money (Fiat is already well used to stealing Italian taxpayer money) is “If the street were paved with pricks, your mother would walk on her ass!” Yes, take that Fiat.
“Moreover, they said it could result in a ‘wealth transfer from the U.S. taxpayer to a foreign company of potentially $10 billion or more.\'”
I’m sure Chysler’s major bond holders are quite familiar with financial fraud; it’s pretty sad that we actually have to count on the bond holders to point out the obvious scandal of the Chrysler-Fiat deal. I can still remember when the media used to actually point out such things.
The Dems are despicable. Taking a 30-40% LOSS represents a windfall?
The feds will find another way. One way is to lend Fiat the billion bucks to do the deal. Then, it fails later, it is not Obama’s fault but Fiat’s.
Yeah, then the Dems and the UAW can stir up a bunch of xenophobic and protectionist nonsense about ‘foreigners destroying an American icon’.
Re jpcavanaugh :
But of course! Why didn’t I think of that.
Obama just needs to now give Fiat the Billions dollars so they can make a down payment on Chrysler. Nothing would surprise me anymore….
In the meantime, we can expect to see the full weight of the US Gov’t put onto these bondholders and around the 1st of May they will announce an other extension if they don’t approve the desired concessions.
Talking Heads! I get it!
In light of all the bailout money moving around, what’s $4 billion anyway? Pull any and all future investment and let Chrysler die like they’ve been trying to do for 20+ years. Even if they make it, we’re not going to see that money ever again. Cut the losses and move on.
GM still has a chance, but they’re going to have to C11 out of their mess and bust ass to get things right or they’ll be wearing Chrysler’s shoes in a few years. PTFOA needs to put the foot down and tell GM that they’re now just Chevy and Cadillac, and on a very short leash.
In the end, Obama will bend over for the bondholders. Again. As usual. The deadline will approach, Obama will be forced to take the bondholder’s offer but the bondholders will ask for even more, which Obama will agree to.
Why anybody thinks the man is a liberal is beyond me. He’s given the capitalists more than any Republican in history.
No wonder the government won’t allow banks to pay back the TARP “loans.” It’s leverage over them.
The interesting thing to me about the division between the bondholders is that the big guys (who were more inclined to take the Obama adminstration’s offer) have also taken tens of billions in TARP funds, while I doubt that the smaller bondholders have. So the feds have more leverage on them, as 50merc points out.
But, honestly, why would a bondholder take any haircut if they think the jig is up anyway? The WSJ article states that the little guys bought their debt at a discount and stand to make money in a C7 scenario. Isn’t that the whole point of their investment? I don’t fault them a bit for standing their ground.
paris-dakar:
The Dems are despicable. Taking a 30-40% LOSS represents a windfall?
Wah, wealthy speculators might lose money. Let’s just nuke the world, I don’t want live in a world where wealthy speculators are ever allowed to lose money.
If Chrysler goes Chapter 7 in this economy even the secured creditors will probably take an 80% loss (I highly doubt the 65 cents on a dollar mentioned above). Chrysler owns very little, Cerberus has a lot of the real estate, including the headquarters, in separate entities that the bankruptcy courts cannot touch.
So yes, getting bailed out by the government and only losing 30-40% is a windfall compared to losing 80%.
But it looks like the administration is going to take the real capitalist route and let Chrysler go Chapter 7, so the government won’t have to worry about how much the investors lose, an auction of Chrysler’s shitty assets and brands will determine that.
Chrysler would be a non issue if our previous Republican president didn’t put it on life support.
You better take something for your Obama derangement syndrome before you get quarantined in a FEMA camp.
Would Fiat even take the loan?
I thought they were angling for free here, loan implies it will actually cost them the billion dollars.
I think this is ideal. The bondholders are setting it up for the Fed to make an example of Chrysler. When April 30 arrives and Chrysler is the same disaster it was on March 31, the Fed will recall the loans and push the Chrysler into C7.
I see the Chrysler failure as a tool to leverage GM restructuring. Once Chrysler is extra-crispy, the Fed can turn around and show how it’s “looking out for the tax payers.” Plus, it can politely point out to GM’s stakeholders what happens when you don’t play by the “Big Checkbook” Fed rules.
Chapter 7 – would leave the bond holders with an empty shell. I guess they could collect whatever is left from the unsold inventory on dealer lots that Chrysler still owns.
Let’s hope that the Feds don’t pony up. Let Goldman, Sachs, Citigroup, JP Morgan Chase and Morgan Stanley fight it out in BK court with the unions and every other creditor where they’ll be lucky to collect a nickel on every dollar.
You better take something for your Obama derangement syndrome before you get quarantined in a FEMA camp.
Yes, I forgot what a wonderful thing it is to have our Government officials publically questioning the patriotism of private enterprises who dare question their cram-downs.
How silly of me. Thank God for the legion of Obamabots patrolling the Internet to keep things in perspective!
no_slushbox: Chrysler would be a non issue if our previous Republican president didn’t put it on life support.
With the full support of our current Democratic one…
Taking a 30-40% LOSS represents a windfall?
You don’t understand how bonds work. (Don’t worry, a lot of people don’t.) Bonds are usually not purchased at par ($1 per $1 of value.) They are traded on the market at prices based upon their risk (their rating), which is factored together with the interest rate in order to arrive at a price.
The recent market price for these bonds has been in the mid-60 cent range. As of a couple of weeks ago, if you wanted to buy these bonds yourself, that’s what you would have paid for them.
At that price, assuming that the interest payments are being made, the effective yield is about 20% to the holder. Of course, the return is that high because the risk of default is high.
The government has a point, because the value of these bonds would have already tanked had the federal government not provided money. In effect, the bondholders are arguing to keep a premium that exists only because they took taxpayer dollars to get it.
Chrysler asked for and received government money. To believe that there should be no strings attached to that infusion is ridiculous. If people are so damn good at business, they shouldn’t go begging for cash and using economic blackmail to get it.
The recent market price for these bonds has been in the mid-60 cent range. As of a couple of weeks ago, if you wanted to buy these bonds yourself, that’s what you would have paid for them.
At that price, assuming that the interest payments are being made, the effective yield is about 20% to the holder. Of course, the return is that high because the risk of default is high.
That’s just my point. The current holders bought them at a certain risk premium assuming a certain sequence of events. Why would anyone pay face value for the bond at this point? Why should they be villified on account of taking a calculated risk based on future value? Isn’t that what the bond market exists to do?
Who wouldn’t expect a certain risk premium for investing in Chrysler at this point? And who are Barack Obama and Jennifer Granholm to wag their fingers in the bondholders faces?
“These debt holders were offered fair market value for their debt and the banks have responded by asking for a windfall,” Peters said in a statement.
A loss is now a windfall, interesting. The language of politics has nothing to do with reality; words have no meaning.
We have heard ideas about what to do with Chrysler from the union haters, the government haters, and the capitalist haters. I just wish Chrysler, GM, and most of the rest of the auto companies would go away completely.
Being a tree hugger I want an openness to allow all kinds of new ideas to emerge. Strong lightweight carbon fiber car bodies, hydrogen/electric/bio fuels, experiments in tires, and refinements in aerodynamics.
We have had 100+ years to play with noisy, dirty, inefficient, and clumsy vehicles it is time to move on.
Why would anyone pay face value for the bond at this point?
Nobody pays face value, anyway. They never did in the first place. That’s not how bonds are priced. To imply that par value is the normal price is factually incorrect. Par value is irrelevant here.
The current holders bought them at a certain risk premium assuming a certain sequence of events.
And if they assume incorrectly, tough s**t. With ratings this low, these were risky instruments, with no absolute guarantee of repayment.
Why should they be villified on account of taking a calculated risk based on future value?
The bondholders are trying to take a premium that they have only because the federal government gave them the money in the first place.
Had the government not infused cash previously, these bonds might be worth 30 cents or so. Uncle Sam would be a moron to pay 65 cents for something when he is the one who contributed to half of that value.
In a Chapter 7 filing, I seriously doubt that the bondholders would get more than pennies on the dollar, so the 65 cents is a sort of illusion. But we all should know that’s BS — as the threat of bankruptcy increases, those bonds will fall in value.
If the bondholders are so confident that the bonds are truly valued at 65 cents, then they should trade the bonds in the market today and cash out. Good luck with that.
In a Chapter 7 filing, I seriously doubt that the bondholders would get more than pennies on the dollar, so the 65 cents is a sort of illusion. But we all should know that’s BS — as the threat of bankruptcy increases, those bonds will fall in value.
If the bondholders are so confident that the bonds are truly valued at 65 cents, then they should trade the bonds in the market today and cash out. Good luck with that.
Again, that’s my point. The current holders will either make or lose money as this unfolds. Why the cram-down? Let it go Ch 7.
The rhetoric Obama and Granholm are using is out of line.
Why the cram-down?
Because an uncontrolled bankruptcy is not the optimal alternative, as it creates the lowest likelihood of the federal government being repaid. They’re your tax dollars, don’t you want a shot at getting at least some of them back?
@Pch101, 10:10am : -What’s that thing with the (?) Price of the bond being inverse -or inversely-proportional to it’s interest rate???
I never quite got that.
I just read the Journal piece. Seems like the secured bondholders were offended by the government’s offer. So they came back with something similarly offensive.
Left unsaid: what sort of haircut was demanded of more politically sensitive creditors (cough UAW cough).
Furthermore, the bondholders may be smart in not wanting to show weakness if they think their legal position is strong. Or, if they think Granholm and Co. will pony up more tax dollars.
The whole thing is nutty. Liquidate Chrysler.
There are some informative posts here on how these securities work.
Another point to consider is that the Administration is playing a weak hand due to the presence of credit default insurance underwritten by another ward of the state, AIG.
It is widely believed that the banks have purchased insurance–now backed by the full faith of the US Government–that will pay for any losses incurred should Chrysler go into default (bankruptcy in this case).
This is the heart of the debt restructuring problem for the senior debt–the taxpayer is on the hook either way. So you get into a situation where the only clear losers will be the workers and retirees…and the thousands of small suppliers and communities that depend on the company’s survival.
Part of the problem, most of the bondholders are SECURED bondholders, against actual assets.
Which means “F-that-S***”, you get a better deal in Chapter 11 or Chapter 7.
Why would anyone buy anything from “Welfare Motors” anyway?
Furthermore, the bondholders may be smart in not wanting to show weakness if they think their legal position is strong. Or, if they think Granholm and Co. will pony up more tax dollars.
Both sides are doing a good job of representing their respective interests.
If I was a bondholder, I’d be doing what they’re doing. If I was representing the federal government, I’d be doing what they’re doing.
Some people are so skewed politically that they insist on turning this into a diatribe against the Obama administration. That is misguided. It’s a financial chess game, and both sides have to play to win. Enjoy the match; they’re both pretty good at it.
Part of the problem, most of the bondholders are SECURED bondholders, against actual assets.
I wouldn’t assume that. The liquidation value of these assets can’t be worth much.
If the bondholders were in such great shape, they wouldn’t have come back with an offer that includes a split of debt and equity. Obviously, they don’t want bankruptcy, either, or else they’d avoid the equity entirely.
It comes down to who blinks first. The government clearly doesn’t want bankruptcy, either, yet they need to look serious about it if they expect to have any negotiating leverage. Both sides have something to lose from BK. The government has the upperhand here, IF they are willing to accept the political fallout that could come from a bankruptcy. That’s the calculus in the bondholder’s equation.
Why bother settling for less than 100 cents on the dollar? If the company goes under, the bond holders collect full amount from the AIG insurance.
@pch101
Very good posts.
Another likely reason that the debtholders wish to restructure outside of bankruptcy is the mere threat of Executive Branch intervention in the legal process.
Lawyers can argue all they want about fairness under the law, but that can amount to a hill of beans when the rules seem to change daily.
What’s that thing with the (?) Price of the bond being inverse -or inversely-proportional to it’s interest rate???
It’s complicated — I would suggest doing your own research to get a thorough answer — but the simple answer is that the yield of a bond increases by paying less for it.
Here’s an incomplete, overly simplistic example for the sake of brevity. Let’s suppose that Company A issues a bond for $1 million, for which it pays simple interest of 10%, meaning that it will dole out $100,000 per year in interest payments.
As an investor, I have to decide what “10%” (or more accurately, whatever share of the $100,000 that I would get if I owned the bonds) means to me. If Company A is strong and returns on other investments are low, then 10% might be worth a premium to me. If Company A or its industry are weak, or if 10% is relatively low by current standards, then I will expect to pay less than par.
Company A is obliged to pay $100,000 per year in interest on these bonds, irrespective of how good the company is or what typical returns are. So since Company A’s obligation doesn’t change, it’s up to the investor to adjust the price accordingly. The investor who pays par (face value) gets a return of 10%. If he pays more, he earns less than 10%. If he pays less, he makes more.
Bond prices fluctuate, just as stock prices do. They can fluctuate a lot when things are turning badly.
Par value is a reference point for the sake of discussion, but it isn’t really the value of the bond, per se. The value is whatever somebody will pay for it, and for something like this, that value is highly speculative because Chrysler is clearly f**ked.
Another likely reason that the debtholders wish to restructure outside of bankruptcy is the mere threat of Executive Branch intervention in the legal process.
Lawyers can argue all they want about fairness under the law, but that can amount to a hill of beans when the rules seem to change daily.
Right. If forced to go into BK, the government would be expected to create a Good Chrysler and Bad Chrysler before filing, at which point only Bad Chrysler would actually be subject to the BK filing. Good Chrysler would get everything of value, and Bad Chrysler would get the garbage, including the debt.
The bondholders would dispute this, because they would claim that Good Chrysler is also theirs to liquidate. If Uncle Sam wasn’t involved, they’d probably be right — in a civil case, the bondholders would argue for something equivalent to fraudulent conveyance, i.e. transferring assets illegally away from the rightful owner just to dodge their obligations.
The problem here is that the feds have a bit more power. The courts would probably be predisposed to find reasons to rule for Uncle Sam, even if the same court would do the opposite if the government wasn’t involved.
The bondholders must certainly know this. That was the risk they took when Cerberus went begging for money. I don’t pity them; it was a calculated risk, and if they miscalculated, that’s just how it goes.
Pch101: That was the risk they took when Cerberus went begging for money. I don’t pity them; it was a calculated risk, and if they miscalculated, that’s just how it goes.
The original risk was when Cerberus bought Chrysler in the first place, and apparently had no idea what it was really buying…
I just wish Chrysler, GM, and most of the rest of the auto companies would go away completely.
Being a tree hugger I want an openness to allow all kinds of new ideas to emerge. Strong lightweight carbon fiber car bodies, hydrogen/electric/bio fuels, experiments in tires, and refinements in aerodynamics.
Don’t forget unicorns and world peace.
You really have no idea how much research the auto industry does in exactly those fields. Take away the existing auto companies and you’re left with a bunch of struggling startups like Tesla and Aptera. Almost all the research in those fields being done today is being done by the existing auto industry including the OEMs and their suppliers.
We have had 100+ years to play with noisy, dirty, inefficient, and clumsy vehicles it is time to move on.
Cars are 99% cleaner than they were in the early 1970s. They are also far more efficient in terms of specific power and mileage (when additional weight for mandatory safety systems is factored in). As far as noise is concerned, Lotus just announced a deal with Harman International to develop and produce active noise control systems (think an audio based muffler using noise canceling technology) that will also include noise synthesizers for pedestrian safety with EVs.
Cars also are not nearly as clumsy as they were a generation or two ago. Economy sedans handle and corner better than most sports cars from the 1960s and 1970s. Hell, we had a Ford Explorer that was very sure footed (ok, so it had a limited slip rear end, but it handled emergency maneuvers well).
Progress goes on.
I missed this before — this is a very good insight:
It is widely believed that the banks have purchased insurance–now backed by the full faith of the US Government–that will pay for any losses incurred should Chrysler go into default (bankruptcy in this case).
This is the heart of the debt restructuring problem for the senior debt–the taxpayer is on the hook either way.
What makes this financial crisis unique is the role of credit default swaps in the scheme of things. It goes beyond AIG; the government can’t know until it’s too late whether a bankruptcy could produce some nuclear results with the swap obligations that were much greater than expected, that trigger a ripple effect throughout the institutional holders that hold them.
They can talk all they want about saving the auto industry, jobs, suppliers, etc., but the greatest concern, one that they can’t talk about publicly, is how they’re trying to avoid the financial system meltdown that might occur if these swaps come into play. The effects of the Lehman failure were a shock to just about everyone, and nobody wants a repeat of that.
The original risk was when Cerberus bought Chrysler in the first place, and apparently had no idea what it was really buying…
Actually, I think that they did know. Chrysler had a potential to be a huge home run — pick up a company for nothing, throw some working capital into it, and potentially turn it into a business worth tens of billions of dollars.
That is the sort of thing that venture capital firms usually do, placing bets that either fizzle out or else do extremely well. A bit risky for a firm like Cerberus, but the sorts of risks that sophisticated investors should have understood.
A loss is now a windfall, interesting. The language of politics has nothing to do with reality; words have no meaning.
While I agree with you in general, in the specific case the bondholders have already earned interest on the bonds so they may turn a total profit even if they have to take a haircut on exchanging the bonds for equity.
Price of the bond being inverse -or inversely-proportional to it’s interest rate???
I think the idea is that the riskier the bond, the lower the price but the higher the interest rate, so bonds trading at par would have fairly low interest rates.
“The government would then put in an additional $6 billion to fund the operations of Fiat-Chrysler.”
Hmmmm… a $6 billion dowry; must be one ugly bride.
Pch101:
The problem here is that the feds have a bit more power. The courts would probably be predisposed to find reasons to rule for Uncle Sam, even if the same court would do the opposite if the government wasn’t involved.
Sad, but possible. And it sets a disturbing precedent – this is hardly a case of National Security where the feds deserve some deference. It’s a car company – a rather lousy car company in a declining market.
To all the “free-market” conservatives who seem to reside here: Your free-market conservative Republican President George W. Bush started all this auto bailout crap in the first place. I would also argue that all of these free market folks who have opposed any sensible regulation of the financial world pretty much caused the current terrible economic situation we are in. Now after raping and pillaging small business and the middle class, they want and get their sorry asses bailed out with no questions asked by the same president who advocated those reckless policies. Hell, let’s allow the D3 to go bankrupt. While were at it, perhaps we should have let the Wall Street bankers and investment types as well as banks just simply go bankrupt. That’s what a true free market means. Does anybody really want that? I bet not. What we need is accountablility and responsibility. And we sure haven’t had either one the last 12 years or so.
And it sets a disturbing precedent – this is hardly a case of National Security where the feds deserve some deference.
Wait, so between your money and some bondholder’s, you’d rather lose your money?
–
I would also argue that all of these free market folks who have opposed any sensible regulation of the financial world pretty much caused the current terrible economic situation we are in…
Well, they advocated building the new house extension out of cardboard because it’s more profitable, then set about playing with matches, and now apparently it’s the government’s fault because they’re trying to prevent the whole thing from burning down.
Dang it, ChryCo is an American company and we need to save it…err…wait we let them be sold to the German’s without a protest. Um, yeah I guess we really didn’t care then. Wait, why do we care now again?
Oh, the product.
Um, no.
The idealistic nature of protecting American union jobs when many folks struggle to survive?
Um, no. I hate that anyone endures hardship, but why enslave the rest of us only to delay enforcement of the now global economic rules?
Is it the RAM and that tool box thing for sure eh?
Hybrid HEMI? Man, that’s like Nth generation technology.
Um, no.
Ok, Ok, we want to protect existing jobs at the cost of sacrificing the very economic principles that made us the center of the economic world?
Um, maybe. Here’s the thing…by protecting what isn’t independently viable we are only delaying a worse economic fate. I understand the ‘free lunch’ these companies are enjoying and why they would welcome it…I’m just puzzled why intelligent and educated people would dump more than any of us that read this site will ever comprehend or earn financially into sustaining business models or implementations that are not viable…
I hope Obama is playing his cards and he’s near the end of his hand with these un-viable businesses. If I had my way as taxpayer, and they took from me 5 figures in 2008, I’d require all lawmakers to have 10% of their pay invested into a mutual fund consisting of all the TARP and other federally supported private companies. Maybe their private retirement program could invest? Oh, but mine should?
Put your money where your mouth is, because you already took mine to play that last hand. Thanks-
-Joe Public
I’d require all lawmakers to have 10% of their pay invested into a mutual fund consisting of all the TARP and other federally supported private companies. Maybe their private retirement program could invest? Oh, but mine should?
Put your money where your mouth is, because you already took mine to play that last hand.
This really gets to the crux of the misunderstanding.
If you were to think this through, you’ll find that if they just let everything go and subsequently we get massive devaluation and unemployment, it wouldn’t be such a fun game to play.
This isn’t just about making money. Not everything is about making money.
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Ok, Ok, we want to protect existing jobs at the cost of sacrificing the very economic principles that made us the center of the economic world?
Given that productivity also hinges on employment, I’m pretty sure you’re reading those off the wrong list.
I have to agree with the Treasury on this. There is something deeply perverse about these banks — which would be dead, if not for the government’s TARP intervention — suckling from the government teat on one hand, and then telling the Treasury to get stuffed on the other. I understand that companies work for the benefit of their shareholders, but the fact that the US Government saved them from ruin does, I think, imply some sort of obligation on their part to assist the government as it tries, however hopelessly, to to rescue another damaged industry.
Whether the banks’ intransigence is in the strategic interest of the stockholders isn’t the only point here: some gratitude toward the public and the public’s representatives might be appreciated. Instead, the banks take the money, run, and then spend money lobbying Congress to block a credit cardholder’s “Bill of Rights” and a first-mortgage-modification addition to bankruptcy law.
To all the “free-market” conservatives who seem to reside here: Your free-market conservative Republican President George W. Bush started all this auto bailout crap in the first place.
So is that the point we’ve reached with the Obama Administration? No longer ‘hope and change’ but now a repeat of all the worst policies of the Bush Administration under the justification “He did it first”?
Why didn’t he just run with the motto ‘It’s our turn now’?