Toxicroach will be here any moment to give us his take on the Chrysler C11 case’s “relax don’t do it” anti-auction action. Meanwhile, here’s a quick heads-up [via Bloomberg]: “The group, calling itself Chrysler’s non-TARP lenders, in reference to the Troubled Assets Relief Program, said the proposed sale to an entity to be managed by Fiat is ‘tainted’ because the process was dominated by the U.S. government, according to papers filed today in U.S. Bankruptcy Court in Manhattan. The group also said the short period of time given to evaluate the sale was improper and the hearing set for today on the bid procedures should be delayed.” And so it was. For a day. Meanwhile, the money shot: “The court should not permit a patently illegal sales process to go forward.” As TTAC reported earlier, the kvetching could well be a simple negotiating ploy to force the feds to pay off the non-TARPies, at a higher rate than the big banks (no less).
I’m no bankruptcy lawyer (I just play one on the internet). And I reserve the right to delete this observation if our experts body slam my logic. But I reckon this opening salvo highlights the holdouts’ realization that Chrysler’s assets are virtually worthless. Otherwise, they’d bitch about the price rather than the process. Which they might do anyway, later.
Meanwhile, it’s not just personal. It’s political. According to the papers, the government deal forces Chrysler to “manufacture the type of smaller cars the Government wants manufactured, satisfy the demands of union laborers, and protect the Government’s investment in Chrysler—all components of a political agenda imposed on Chrysler’s management.”
Again, federal bankruptcy judge Arthur Gonzales granted the non-TARPies motion for a one-day delay so they could see what the government plan is really all about. And why not? As the Detroit Free Press reports, this is some serious shit right here.
Today’s hearing also included a request from the lawyer representing the lenders opposing Chrysler’s plan to keep their identities secret for some time, saying the investors who were public had received death threats . . .
Lauria said while the group included two known members—Oppenheimer Funds and Stairway Capital—it had other members who wanted to remain unknown for some time longer.
I still want to know how long it’s going to be before these “high quality, fuel efficient cars that Americans want to buy” are going to start making their way over from Italy and into Chrysler showrooms. And what are Chrysler and Dodge dealerships going to sell until they get here? And how are they going to differentiate the Fiats they sell as Chryslers from the ones they sell as Dodges? Oh, and if Americans don’t want gas guzzling trucks and SUVs, what is to become of Jeep, whose only half way decent vehicles are exactly that? This thing raises so many questions, where are the answers?
The Non TARP lenders (TARP-Less?) are following the tried and true Viet Cong strategy, If we win, we win. If we delay this long enough, we win. If we lose, we already know what’s in store and we have accepted it.
Everyone knows time is on their side – and you can’t stop the clock. The judge has a reputation for being practical so the odds of him spiking the Fiat deal is slim.
Give it a week or so, and everyone Gov’t, Judge, lenders are all going to meet in Chambers; the Judge will say You’ve made your point, fun time is over…. time to take a deal. Ok, Gov’t, throw them a bone and let’s get this over with.’
I wonder how Judge Gonzalez will feel about one unsecured creditor (the government) using its political power and financial leverage over secured creditors (the TARP recipient bondholders) to benefit another unsecured creditor (the UAW) to the detriment of non-TARP recipients who were not being allowed to represent their own interests.
The Obama administration has still not provided any kind of end strategy that will have the government sell or redeem its proposed 50% share of GM and 39% share of Chrysler.
@ MikeInCanada:
And then Obama can announce, ‘I don’t stand with the hedge fund vultures, but I just gave them an even larger amount of your tax dollars than I planned, so I could keep this Chrysler charade going for a few more months.’
By announcing the terms at the beginning Obama put himself in a tough position. Now he’s either going to have to admit defeat to the hedgies or do some shady business to make them go away. Perhaps, as PCH101 says, the good company/bad company plan will allow him to set the value of the assets (which I agree are probably worthless) and pay whatever he feels like to the non-Tarp investors, but I agree that they are going to do all they can to delay.
At least these Non-Tarp guys are trying to protect my investments (yes, little ole me is part of that Evil Hedge Fund group by contributing to the Bill and Melinda Gates foundation).
When do we start the Non-Tarp Legal Defense Fund?
I wonder how Judge Gonzalez will feel about one unsecured creditor (the government)
I find it curious that you keep repeating this statement when it is absolutely 100% incorrect.
The government loans to Chrysler and GM are secured and have recourse guaranties.
Facility: A term loan that is full recourse to Borrower(s) (except as provided on Appendix A), secured by a first or junior lien, as applicable, on all of Borrower(s)’ assets
Notice use of the term “secured.” These loans are not unsecured.
http://www.treas.gov/press/releases/reports/chrysler%20final%20term%20&%20appendix.pdf
I have now provided links to you about both loans. If you are going to continue to make your claim, then you need to support it.
Why am I not shocked about the death threats? I’m just amazed that I’m not surprised about that…
re Pch101 :
Just asking the question – not wanting to get into it…
What are the unencumbered assets securing the Gov’t loans?
I have been under the impression that pretty much everything was mortgaged long before the Gov’t showed up.
What did Obama offer Arthur Gonzales to roll over and commit treason?
Ronnie Schreiber writes:
non-TARP recipients who were not being allowed to represent their own interests
Then what are these non-TARP recipients doing in court?
Why is the judge hearing their case?
Why did he grant a delay to further look into their claims?
I’d say the non-TARP recipients are representing their own interests just fine, and the court is doing its job by hearing their claims.
The system continues to work as advertised.
It seems to me all the above points are valid or at least have to be decided by the court. Legal proceedings are notorious for time consuming delays as each side gets to present its case and objections. That’s how lawyers make their money.
There are at least as many sides in this case as in Chrysler’s Pentastar so this is going to take a long time.
Don’t expect the emergence from bankruptcy anytime soon. 60-90 days is going to look like wishful thinking by the time this is all finished. Meanwhile Chrysler sales fall, people lose jobs and Chrysler products are crossed off ever more shopping lists.
Bankruptcy isn’t easy or fun. And the end result is of questionable value. That is why it is the last resort. I would not be surprised if whatever company emerges after bankruptcy has more or less the same problems as Chrysler had going in. The names will be changed but the real world is still the same.
The bottom line is that the present rules are at stake, and a judge is going to have to weigh the law against a lot of political pressure unless someone can figure out a way for the non-tarps to lose without changing the perception of lenders.
If the lenders end up deciding that the rules have changed against them, the cost of capital and access to credit will change for the worse.
There have been a lot of silly side arguments on this topic, but they are just that, silly. The non-tarp lenders are going to argue that this case should be just like other cases, and that they should get more than lesser creditors.
It doesn’t matter if they bought the bonds for pennies on the dollar, because if you start screwing the speculators, you really screw the primary lender who depends on the speculators being there when he makes the original loan. Eliminate the speculators, and the primary lenders will raise the rates to meet the new risk.
It doesn’t matter what anyone thinks the new company stock is worth except the plaintiffs and then the judge. They are entitled to go after it in this case.
It doesn’t matter if a politician claims the non-tarps are looking for a bailout. It sounds to me that these people want to solve the BK in the normal matter, and that’s not unfair or looking for something special. It’s the union looking for a bailout here, and the administration trying to get them one by fiat.
What are the unencumbered assets securing the Gov’t loans?
That’s unclear. I suspect that all of the secured creditors aren’t particularly concerned.
There are also entities serving as guarantors. But without seeing their balance sheets, it’s not possible from here to assess those, either.
The point remains, though, that from a legal standpoint, these loans are secured. There is no reason for anyone to claim otherwise. We can speculate as to whether our security is worth a damn, but legally speaking, we have it.
@MikeInCanada, 11:02a: Tarp-Offs.
…
The other guys would be: Tarp-ONs.
:D ;P
pch101,
Just because the government says the loans are secured doesn’t make it so. How did they get above the SENIOR secured loans? Are they SENIOR SENIOR loans?
The U.S government is in the third position, first being the banks, second being Cerebrus/Daimler, then third being the government.
http://online.barrons.com/article/SB124122579378179443.html
Re Pch101 :
Taken at face value, then the Gov’t loans are ‘secured’ however, isn’t that just a matter of semantics (for our purposes here today)?
Doesn’t this make the important adjective “Seniority”? As in Senior Lender?
The TARP’less contend that they are the senior lenders – and consequently have first right of recovery (at face value, probably). Then if anything else is left over the junior secured lenders get the rest, up to the amount of their loans. Then the unsecured get in line and duke it out.
In the case of a home foreclosure with multiple secured mortgages the primary mortgage gets paid off first and the second mortgage gets paid off only after the primary loan is satisfied.
Is it different in business?
Just because the government says the loans are secured doesn’t make it so.
They are secured. You may speculate about whether there are sufficient assets with which to pay them, but the loans are secured and guarantied.
The U.S government is in the third position
Nobody debated that, that position was reported days ago.
But the loans are not unsecured. Those who insist on saying that the loans are unsecured are wrong.
Taken at face value, then the Gov’t loans are ’secured’ however, isn’t that just a matter of semantics (for our purposes here today)?
It isn’t just a matter of semantics when you have posters are falsely claiming that the government has no right to negotiate a deal because it has an unsecured claim. That point is false on two counts: there is a security interest, and there is nothing that bars parties from negotiating with each other. A lot of the comments made are frankly verging on hysteria, with grandiose misstatements of the law and the conditions of the loans.
On the other hand, if you want to question whether the lenders are going to be repaid, it’s fairly clear to me that no one — not the bondholders, not other creditors, not the US Treasury, but no one — is going to be repaid par. That’s just what happens when the liabilities exceed the assets. A lot of us saw that aspect of this coming a long time ago.
Re Pch101 :
“…fairly clear to me that no one — not the bondholders, other creditors, the US Treasury, but no one — is going to be repaid par.”
I don`t disagree.
If this is the case, secured lenders getting partial repayments – they why are unsecured creditors (Hello, UAW) in line for getting anything more then just the time of day from the BK Court.
You have to think about “secured” being a technical term that only a team of lawyers can define (only they don’t really agree either). So yes, its just semantics.
So what is going on is that a bunch of players are arguing about the rules. There are normally arguments, and a judge sorts them out, but now you have a 300 pound gorilla getting in an intentionally trying to break the rules (even if they are doing it with good intentions).
There is no free lunch, and if the rules change, it will not be good.
Landcrusher writes:
There are normally arguments, and a judge sorts them out, but now you have a 300 pound gorilla getting in an intentionally trying to break the rules (even if they are doing it with good intentions).
I think this sums up the Obama-critics’ claim very clearly and very calmly.
But I don’t think it is a true statement of fact.
I agree that the White House is something of a 300-pound gorilla when the usual players are just banks and financiers — the President gets a lot of prime-time press coverage that the others don’t usually get. But I do not see hard evidence pointing to any actual attempt to break the rules. Negotiation prior to a bankruptcy filing is not against the rules. Making an ungenerous offer is not against the rules, nor is it an attempt to change the rules as you go along.
Blackmail is. Corrupting a bankruptcy judge is. Having Congress pass a new bankruptcy code applicable to currently outstanding cases is. But there is not much evidence that these things are happening, beyond a press release from a bond advisor. Give the system a chance — it has held together so far.
I agree that the White House is something of a 300-pound gorilla when the usual players are just banks and financiers — the President gets a lot of prime-time press coverage that the others don’t usually get. But I do not see hard evidence pointing to any actual attempt to break the rules. Negotiation prior to a bankruptcy filing is not against the rules. Making an ungenerous offer is not against the rules, nor is it an attempt to change the rules as you go along.
That’s a good analysis. To add to that, the government is acting much like any private sector creditor would in its position — it is fighting for its interests. It has the unique advantages of a bully pulpit and a near-unlimited litigation budget (well, sort of), but it’s behaving in much the same way that happens when opposed interests are fighting over scraps.
I’m not an attorney, but I’ve dealt with these matters enough that I know what I would be arguing if I was a bondholder. Personally, I think that they are on weak ground, because the assets aren’t worth much, not nearly enough to get everybody repaid.
It also might help if people understood that “secured” means having an ability to lay a claim against assets, not a rock-solid guaranty that the obligation will be repaid. That’s why we have ratings — some debt is just junk.
If these guys get pennies on the dollar, that’s just how things go. It sucks for them, just as it sucks for those suckers who paid $50/share for GM stock, and who are going to only see it diluted further from here. If you want to get your money back in the future, maybe entrusting it to Cerberus isn’t such a great idea.
I don’t see UAW queue jumping
NewCo isn’t worth much otherwise FIAT wouldn’t get 20% for not much more than providing management. The UAW has made a deal with NewCo to cut labour cost significant and for this NewCo gives a large part of the company to VEBA.
NBK,
You make an excellent point, perhaps my accusation is too soon, since the issue has not yet been decided. We will have to see if they have or will try to really break the rules.
However, the behavior to date is already changing the rules anyway, and they know it, and they don’t dislike it. As PCH points out, the bully pulpit and other government powers are PRECISELY weapons no one wants to have to fight.
So if you are someone who lends money, do you now figure in your risk assessment the possibility that the borrower may later go to the US government for help, thus involving a party that will push your debt down the ladder, whose power can threaten you with all sorts of bad things, and who has already shown they are willing to call you out as a bad guy for simply standing up for your investors (as you are contractually, and sometimes legally required to do)?
Well, if you don’t now take these things into account, you are an irresponsible fool who has no business managing money. So, with all the talk about increasing the free flow of credit, they are actually doing precisely the wrong things. Their only hope is that the idiots who bought all the mortgage paper didn’t wise up and learn anything.
Landcrusher, this is the way it has always been. The only difference is that it is now the state. Normally a company lends money without security. When it gets into trouble its lenders will start to demand secured loans so when the company goes tits up the secured loans will be paid off and the old, unsecured creditors will remain unpaid