Those damn hedge funds and their secured debt! Despite enormous pressure from the US Treasury, “holdout creditors” rejected the federal government’s offer to increase the cash part of a proposed debt-for-equity swap to $2.25 billion (up from $2 billion). A high noon Wednesday deadline came—and went. Hey! What happened to Chrysler’s “owners” Cerberus? Anyway, according to Automotive News [AN, sub], the feds—under Presidential Task Force on Automobiles leader Steve “Chooch” Rattner—are stepping-up their campaign to blame the recalcitrant bondholders for ruining their non-C11 plans to recreate the ailing American automaker as a Fed-Fiat-UAW partnership. “While the Administration was willing to give the holdouts a final opportunity to do the right thing, the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler’s future success,” an “official” told AN. “Their failure to act in either their own economic interest or the national interest does not diminish the accomplishments made by Chrysler, Fiat and its stakeholders nor will it impede the new opportunity Chrysler now has to restructure and emerge stronger going forward.”
What accomplishments? Needing three bailouts?
In other words, no matter what, we won’t let Chrysler die (chapter 7).
Whats ridiculous is the notion that bondholders are not acting in their interest. The problem is, they ARE acting in their own interest and the plans brought forth were stupid…
Chrysler’s big creditors are secured. A secured creditor should NEVER accept a pre-bankrupcy cramdown, thats why they HAVE security.
GM’s big creditors are unsecured, but why accept a “debt for equity” swap at worse terms than other unsecured creditors, eg VEBA?
And even if the terms are the same, why accept a swap if the company might go Chapter-11 anyway, where your equity stake now goes away, but any bondholders who did NOT swap now get equity.
All the swap proposals were nonstarters, and any attempt to pretend that they could be viable were either delusional or fraudulant.
I’ve seen things you people wouldn’t believe. Sebrings on fire off the shoulder of the Nurburgring. I watched Jeep high-beams glitter in the dark near the Rubicon Trail. All those moments will be lost in time, like a drop of 10w-30 in the rain. Time to file . . . .
Now the Chrysler Fiat comedy of errors begin. America is sure going to love the 500.
Does anybody know the bondholders’ situation regarding credit default swaps? I’ve read elsewhere on the Internet (so it must be true) that the bondholders are covered by CDS’s and prefer bankruptcy so that they will be covered in full by the likes of AIG. So, while they are being a pain in the governments’ patuty at the moment, they will be quickly turning around to retrieve some bailout money that was provided to the financial industry.
Thank you Nicholas Weaver (above).
A secured creditor should NEVER accept a pre-bankrupcy cramdown, thats why they HAVE security.
In the real world, these happen when things aren’t going so well. That’s just reality.
If the collateral is split between Bad and Good Chrysler pre-filing, as it seems that it will be, then there won’t be much to take.
On the whole, the deal isn’t ideal for any of the parties. The government loans go poof, the union gets worthless stock and the bondholders are going to get a big haircut. At least we stalled it long enough to avoid a broader financial meltdown.
PCH: The split doesn’t work, the lean is against the collateral, not the company, and the collateral is whats needed to make the company work.
Yeah, you could put that in bad crysler, but only if good chrysler wanted to build cars with no factories and no tools.
@Srynerson:
Great reference. Thank you, Rutger.
Now Tony can come in, and indeed fix it (Chrysler) again.
Srynerson = winner of the morning.
I think the whole thing is a farce. The bondholders were never going to accept the cramdown. They really couldn’t, because they have fiduciary duties to people, and just agreeing to take less for no particular reason would be a breach of that duty.
Yeah, you could put that in bad crysler, but only if good chrysler wanted to build cars with no factories and no tools.
That would be the theory, but in real-world practice, there are workarounds, and the creditors would be stuck in litigation before being forced to a compromise.
It’s difficult to value these assets, because they have little liquidation value. It’s not as if there are 100’s of car manufacturers who are going to be competing to buy an EPA-targeted brownfield or a big building that is primed to build cars that nobody wants, or even the parts within them. The government has the leverage here.
The only reason for secured creditors to accept the discount is their need to turn the collateral into cash. Bondholders don’t want plants and equipment, they want their money back. I am guessing that there will not be many buyers for auto manufacturing capacity in the near future, so a discount of some amount would be prudent.
Another test for Amerika.
It really will boil down to this, truly:
Are we a nation of laws?
Or have we become a nation of diktat? (Root word for DICTATOR).
http://www.ask.com/web?q=dictionary%3A+diktat&content=ahdict%7C2429&o=0&l=dir
It seems the bondholders realize one thing that the unions and government won’t admit: this parrot is dead!
Jordan Tenenbaum :
April 30th, 2009 at 9:18 am
Now Tony can come in, and indeed fix it (Chrysler) again.
Hello, Jordan? It’s 1980 calling. Please give us our joke back.
@AKM & Ferrygeist: Thank you, but I stand on the shoulders of giants.
Pete, I know, and I’m sorry. Just know that I am an avid Fiat fan.
Now that is Change We Can Believe In
toxicroach said: “I think the whole thing is a farce. The bondholders were never going to accept the cramdown. They really couldn’t, because they have fiduciary duties to people, and just agreeing to take less for no particular reason would be a breach of that duty.”
In other words, they’re damned if they do and damned if they don’t. They have to say “no” otherwise get their asses sued for breach of fiduciary duty; and when they say “no” they make themselves an enemy of the powers-that-be (aka as the chief fascist-socialist in total control of all, he thinks). Messiah complex, anyone?
Too many cooks in the kitchen; too much government interference; too many laws; too much politics interfering with real-life.
Are we a nation of laws?
The last administration already answered that question definitively: If you’re part of the political elite you can a) ignore the law, b)stack the DOJ with ideological allies and use them to creatively interpret the law, c) blackmail the legislative branch into retroactively making your lawbreaking activities legal, or d) a good old fashioned pardon!
“an “official” told AN. “Their failure to act in either their own economic interest or the national interest…”
Officially what? Retarded? Insane? Megalomaniacal?
Ok, I’m sure I’m not the only one thinking this, but isn’t Chrysler’s bankruptcy filing kind of a guinea pig to see if it will work for GM too? Also, I have heard this is not so from my home state Detroit News (Howes, I think), who says that the two are not that similar due to GM’s much larger unsecured debt. Am I ahead of the game here? Behind? Either way you guys are generally pretty sharp on this stuff, so I’ll just wait and see I guess.
“It’s two..minutes…to midnight
…
As the madmen play on words and make us all dance
to their song, to the tune of wasting billions to create a bigger pile of junk…”
/Apologies to Bruce Dickenson
Does this mean the end of “fine Corinthian leather”?
Ricardo Mantalban is rolling in his grave right now.
I’m waiting to see what Ken Elias has to say after the announcement.
And the blame starts… now.
Can someone explain the “bankster” insult to me, btw? I don’t get it.
While I’ve been guilty of blaming the government for this monumental mess, the blame rests solely with Chrysler leadership.
Like any of the big auto mfgs, they’ve had ample time to create compelling, desirable cars and trucks. They failed. Their failure has little to do with Republicans or Democrats, and everything to do with what they lacked: leadership, corporate culture of success and commitment to quality at the manufacturing plants.
Yes, Bush throwing a lot of money at them, and Obama throwing even more money at them was stupid, it’s not their fault that Chrysler sucks.
The warm-up was pretty funny, actually. It was as if Chrysler, GM and Ford were the only companies that provided a middle-class dream to workers in the 20th Century. It was also funny when he talked about Chrysler’s innovations and what not. Now, that’s true that Chrysler was once an innovator, but they haven’t shown much innovation since the Cupholder.
Well, so the PTFOA approves of the business plan, and Fiat won’t get anything until the U.S. taxpayer gets paid. Let’s play along for a second and say, “Gosh, you guys are right.!”
There’s some numbers I’d like to see, but won’t.
1. What’s Chrysler’s burn rate now?
2. How much will we have to keep pouring into Chrysler to keep it alive until it starts cranking out UAW-built Chrysler-Fiats that the PTFOA thinks Americans will buy?
3. What do the marketing studies show about American consumers’ perceptions of Chrysler-built Fiats vs. American built Hondas, Toyotas, Subarus, Fords, etc.
4. How long will it take Chrysler to repay the billions it’s going have to pay back the U.S. government? How will that number compare to the already profit killing legacy employee cost and health care costs?
We’ve been hearing for years from Detroit that legacy costs are what drives up the price of US built cars. Well guess what, they just added to it.
The upside of this? Well, at this point, nobody has been proven wrong. This is still a functionally dead company. Nothing has changed. We should place bets on how much longer Chrysler will last. My guess is that sometime shortly after the next mid-term election, Chrysler’s a goner.
Srynerson :
April 30th, 2009 at 9:00 am
I’ve seen things you people wouldn’t believe. Sebrings on fire off the shoulder of the Nurburgring. I watched Jeep high-beams glitter in the dark near the Rubicon Trail. All those moments will be lost in time, like a drop of 10w-30 in the rain. Time to file . . . .
LOL, My favorite movie……..