Federal bankruptcy judge Arthur Gonzalez has pulled the trigger on Chrysler’s reorganization. Late last night, Arty cleared the way for the bankrupt automaker to review and accept bids on the company’s assets. Gonzalez said there’s an “urgent need for the sale to be consummated.” What’s more, the bidding process offers the prospect of “a fair and orderly sale.” The ruling extends the bidding deadline by five days, to May 20. One week later, the judge will hold the hearing to approve the sale of assets. Not-so-coincidentally, that’s just three days before GM’s drop deadline for its [theoretical] pre-C11 reorganization.
Toxicroach puts it this way: “The fat lady hasn’t sung quite yet, though she is warmed up and ready to go.” And while we wait, keep in mind that the word “bidding” is more than slightly misleading. Fiat—I mean the U.S. Treasury Department (that’s you) is the only serious customer for Chrysler’s carcass. They’re looking at scarfing Chrysler’s good bits for $2 billion.
In all, the feds are fully committed to spending $8 billion—on top of [say goodbye to] $4 billion dollars in previous “loans”—to keep the zombie automaker vertical.
ChyrCo’s lead counsel, Corinne Ball, was positively giddy on this point, demanding (suggesting?) a cash deposit of at least $200 million (10 percent) of the Treasury Department’s proposed payment for “good” Chrysler. “We hope people do bring in a wallet,” Ball said. Meanwhile 10,000 Chrysler creditors have formed a committee to see if they can wrest $50 million from the deal.
I think she meant to say, “I hope THE people bring a wallet”.
I am so sick of the word “HOPE.” The President “hopes” his plan works, Chrysler “hopes” people come with money. Everybody hopes, but nobody knows, nobody has a plan, nobody is being proactive and going out to get it done.
For Christ’s sake, America, stop hoping and start doing!!!!
I am sick of the word “smart” also. Grrrr
So the remaining creditors get what?
Is anyone else bothered by the direction taken by Chrysler? Nearly 15 years ago, they bought AMC. Now, FIAT, the UAW, and us are buying a company whose only assets are, well, Jeep (AMC) and the dealer network.
Would we not be better off today if Chrysler’s dealer network had bought Jeep 15 years ago?
You know if there wasn’t 8 billion or more taxpayer dollars in subsidies on the table, Fiat would walk from this deal.
Chrysler is a dead brand. Dodge may eek out enough sales while the subsidies continue. Jeep is an iconic brand, but seriously needs to be trimmed back to two platforms, the Cherokee and the Wrangler.
What Arthur Gonzalez is really saying:
“If I obey my political Master, maybe I will be his next Supreme Court nominee”
The nine lives of Chrysler… Amazing…
” oy vey” !
They went judge shopping. This guy ain’t going to go against the government of the United States of Zimbabwe.
Yesterday we found out that Viper was part of “bad Chrysler”. So, what to the documents say Fiatsco is buying with our 2 billion dollars as part of “good Chrysler”?
“What Arthur Gonzalez is really saying:
“If I obey my political Master, maybe I will be his next Supreme Court nominee”
“They went judge shopping. This guy ain’t going to go against the government of the United States of Zimbabwe.”
Interesting, people said the exact same thing about Judge Gonzalez re: the Enron filing.
Judge Gonzalez was chosen at random, through a process known as “the wheel.” It is literally that: a wheel with the judges names on it. The clerk spins the wheel and Lady Luck chooses the “winner.”
If the Obama administration cheated—say, by loading only Gonzalez name—there would be hell to pay. Of course, there’s going to be hell to pay anyway.
So however are suppliers staying in business to provide parts?
@kristjan
Not likely.
That was before the US dove headlong into the same sort of inflationary money printing that destroyed the Zimbabwe money.
Fiat—I mean the U.S. Treasury Department (that’s you) is the only serious customer for Chrysler’s carcass.
The bondholders are likely toast. Their bluff just got called.
When nobody else shows up to buy stuff, a lot of their arguments will have been neutered. As surprising as it may be, there is no hot market for used automotive factories or the IP value of the Sebring, which makes it tough to defend most of their case.
“@kristjan
Not likely.
That was before the US dove headlong into the same sort of inflationary money printing that destroyed the Zimbabwe money.”
Hardly.
If I were the non-Tarp debt holders, I would get into a bidding war with the gov for good Chrysler. If they win, bailouts forever, if they lose, they at least push up the price and get more bailout money.
If I were the non-Tarp debt holders, I would get into a bidding war with the gov for good Chrysler.
The bondholders don’t want to own the assets. They surely don’t want to write checks to purchase their own (worthless) collateral from the other bondholders.
Strip away the surrounding drama, and the whole ploy is ultimately just a haggle over the price. It isn’t a moral crusade, their issue is money. They are trying to erect enough obstacles so that the price goes up, and the new company lawyers are trying to knock them down.
An interesting idea to ponder, that I have not seen any discussion of is this: We know that there is only going to be one bidder for the bulk of Chrysler assets out of which Fiat thinks it can run a car company. We don’t know if there is anyone else out there who would entertain an offer to pick off a specific asset or group of them (I’m thinking Jeep and some of its current products). Neither Daimler or Chrysler LLC ever shopped Jeep around, so it is not surprising that there has been no rumors of interest out there in blogland. But what about it – is there any likelihood of an offer for Jeep that might come from some other source than the Treasury/Fiat deal? Just wondering out loud.
RF:
Judge Gonzalez was chosen at random, through a process known as “the wheel.”
This is true. Once you get to a court, you have no choice as to the judge. But the choice is in which forum to choose to file. I am guessing that Chrysler had many choices of Federal Districts in which to file. Michigan and Delaware (presuming a Delaware LLC) are two, and they would probably have grounds to file in locations where they have a major presence, such as a plant. But, they chose the district that probably gave them the most favorable array of judges from which the random choice would be made.
I’m visualizing the executive lunchroom at Daimler’s offices in Germany. I bet that every day, those guys sit down for lunch and have HUGE German laughs over this Chrysler situation.
Or at least I hope they do. After plough $37 billion into this dead bird, somebody needs to get some laughs.
The way the DIP is structured, the only alternative bid can be on the same terms as Fiat’s deal.
IOW, no bidding for specific assets, or bidding a higher amount if the VEBA is not included.
That’s the reason the holdouts are miffed–the parts are clearly worth more than the whole given the way the government has structured the deal.
Where’s Toxicroach?
The also could have chosen SDNY because it is the most convenient, which is important when time is essential. Cerberus has NY headquarters and NY lawyers, the Treasury officials involved are generally based out of NY or DC, the SEC is largely in NY, the Italians probably wanted New York instead of something inland, and the cooperating bondholders were mainly NY banks.
Question I should research: Why did Enron end up in SDNY instead of SDTX?
I am sick of the word “smart” also.
Smart = “there’s no way in hell this would work in the real world, so let’s bring in a bunch of pointy-headed Ivy League academics and *they’ll* make it work with their super-sized brains.”
I also nominate “synergy” to the list of words I’m sick of…
@motownr
Excellent brief summary.
the parts are clearly worth more than the whole given the way the government has structured the deal.
I don’t know how anyone could possibly prove that.
Judging from what we’ve been seeing elsewhere, there isn’t much of a market for Chrysler’s automotive brands, designs or equipment. It’s not as if we’re seeing bidding wars for Saab, Hummer or Volvo, or that old engine factories are particularly in demand.
The collateral just isn’t adequate. The value of a machine is derived from its ability to produce products that people want to buy for more than they cost to make, not from the price of the used machine in a recessionary market.
Basically, the bondholders screwed up because they overestimated Chrysler’s prospects when they bought the bonds and/or the value of whatever swaps they may have bought to hedge it. It’s just hard for me to get teary-eyed over that.
@ jpcavanaugh
In effect, the question you asked earlier might be rephrased as “Is there a division, or product line from Chrysler, that stand-alone, makes a profit?”
Presumably that is what the PTFOA has been pawing through, therefore off to BK.
Why there is a Ch11 for Chrysler rather than ‘parting out’ Ch7 is harder to fathom. There are very capable and world-wise distressed asset people at my employer who are scratching their heads.
It’s dreamland to expect a reconstituted Good Chrysler to operate. See related stories regarding dealer finance, GMAC and Chrysler Financial, plus of course the suppliers that are just hanging on…..somehow.
Smart, synergy…
The ultimate sickening buzzphrase these days is “going forward.”
Why there is a Ch11 for Chrysler rather than ‘parting out’ Ch7 is harder to fathom.
The value to the buyer is the ability to hit the ground running and begin producing revenue as soon as possible. The sooner that they are able to resume production of whatever it is that they are going to produce, the better.
The buyer needs: some production facilities, a Rolodex of dealers who can be reengaged, a clean balance sheet, a workforce and working capital. They’re getting that here.
This deal makes sense to a few parties who are already in the business and who wish to expand their North American operations. It makes no sense to virtually anyone else.
The play here, if there is one, isn’t in breakup value but with market share. That’s one reason why the bondholders are going to get squat, and why the government is cozy with Fiat — there is virtually no one else to buy up this company, and if the government wants (at best) the chance to recoup some money or (at worst) a soft landing, doing this deal with someone like Fiat is the best shot they’ve got.
So,
it sounds like the Bondholder’s first strategy was to play that the company was worth more than what was being laid out – Toxic had pointed out that not enought time was being given to see if others would come to bid and PCH was saying that it didn’t matter since Chrysler has been trying to sell itself to everyone over the last 6 months and Fiat is the only one standing in the court room today.
And they lost.
Do the bondholders now have a second play with the way the percentages are being handed out (them only getting 10%)?
I know that today the company is really worth nothing – but do they deserve a bigger slice of the future potential?
I know that today the company is really worth nothing – but do they deserve a bigger slice of the future potential?
In theory, the bondholders should get at least as much out of an 11 as they would out of a 7.
That’s why they’re hosed, in my opinion. The liquidation value is low. Their strategy seems to have been centered around creating doubt about the value, and using the time involved in sorting it out to motivate the government to offer up more so that they would drop their claim. That is probably not going to work.
We also need to keep in mind that the “non-TARP bondholders”, as they like to call themselves, are $300 million of a $6.9 billion bondholder pie. They are obviously a small fraction of the overall piece. They really don’t have much leverage here, and they stand little to gain in absolute terms by slogging it out. The winner will be their lawyer, who must be making some decent billables for making arguments that won’t go anywhere.
“I’m visualizing the executive lunchroom at Daimler’s offices in Germany. I bet that every day, those guys sit down for lunch and have HUGE German laughs over this Chrysler situation.”
Yeah, and the laugh is on them for being such fools!
Pch101 :
May 6th, 2009 at 11:28 am
We also need to keep in mind that the “non-TARP bondholders”, as they like to call themselves, are $300 million of a $6.9 billion bondholder pie.
Pch101 seems to have no idea what “priority” is. Let me explain:
If you die without leaving behind a will, your wife, your son, your cousin, your cousin’s brother in law all want your assets.
But there is a queue. Your wife should get what she is entitled to (most likely 100%). And your cousin’s brother in law will likely get nothing. If he jumps into the front of the queue, something is wrong here.
No matter how much is the bondholder owned, $6.9B or $690B, junior creditors such as UAW and the government (i.e. your cousin’s brother in law) should always wait until the first ones in queue (i.e. your wife, your children) gets paid in full.
What the government is doing now is equivalent to your cousin’s brother in law forcing his way into having your assets with a gun and leaving your wife and children only 10%.
In short, the bond structure is a queue structure and not a democratic vote structure. A democratic vote system to deprive your private asset is called Communism.
Pch101 :
May 6th, 2009 at 11:52 am
You’re obviously not a bankruptcy lawyer. Sorry.
I didn’t read though all your previous posts. In case I missed it, are you implying, in this post, that you are a bankruptcy lawyer (and thus your comments has more authority)?
Are you?
I have worked as a consultant on business bankruptcy cases, and have hired BK lawyers and been to BK court and in creditors’ hearings in the process. So I do have some professional experience with this that you presumably lack, yes.
You should read the content elsewhere on this website. This piece addresses the issue of how absolute priority is not an absolute doctrine in bankruptcy court. https://www.thetruthaboutcars.com/chrysler-bankruptcy-analysis-iii-will-the-absolute-priority-rule-kill-the-sale/
The US court system is not as you described it. Sorry, but you’re just incorrect. You might wish it was true, but it isn’t.
You didn’t answer whether your are a licensed bankruptcy lawyer or not.
It’s a “yes” or “no” question. Not a “post your resume” question.
I’ve answered your question.
And as usual, you’re wrong on the facts. You have a tendency to confuse your political views with what’s actually in the law and with real-world business practices.
If that’s your answer, then I assume that your are not a bankruptcy lawyer, because you “have hired BK lawyers.”
If hiring and talking to BK lawyers is some kind of credential, then remember that the dissent bondholders also “hired BK lawyers.” Very high profile BK lawyers according to the price tag. They certainly know far more about BK laws and real-world business practices than you do.
If hiring and talking to BK lawyers is some kind of credential
It is when you’ve been engaged to turnaround the entity.
In any case, your claim about absolute priority is obviously wrong. That link discusses aspects of it, and makes it clear that it is not an absolute doctrine in US courts.
Your comment would be inaccurate, irrespective of my professional experience. But as I have dealt specifically with this issue myself, I knew that going into this. You, as is typical, did not, and apparently still don’t.
I admit that I am amateur in this area. But your are no professional either. I view you as a “DIY BK lawyer.” It may turn out OK with simpler projects. But there are tons of DIY disasters out there too.
This issue, as I pointed out, is not bounded by BK laws. As government stepped in last year without following conventional routines. The implication is further than bankruptcy.
From the link you provided, there is the following text:
Adding to that complaint the creditors have claimed that because it is the gov’t that is queue jumping (both on its own behalf and on behalf of the UAW) the deal constitutes an illegal “taking” by the gov’t and violates the Fifth Amendment.
I don’t see much difference from Cuban government seizing the assets of Coca Cola years ago.
But your are no professional either.
Er, I’ve been the one making the decision as to whether to file in the first place, which required that I understood what my odds and constraints were before going into it. The lawyers are handling the paperwork; they don’t handle the professional wrangling that determines much of the outcome.
This issue, as I pointed out, is not bounded by BK laws.
Now you’re contradicting yourself. First, you claim the doctrine of absolute priority (which does not rule supreme in the US system, contrary to your staetment.) Now, you want to change your story.
Sorry, but yet again, you confuse your political goals with how things actually work. You may have opinions, but your insights as to what to expect are just not helpful. Your wishful thinking about how the world should be has no bearing on how things actually turn out.
Your wishful thinking about how the world should be has no bearing on how things actually turn out.
The Unite States government seizing private properties is not my wishful thinking. It’s a fact.
The Somalian pirates have taken GM and Chrysler with help from their leader.
Remains to be seen whether people will buy the cars.
The issue of whether or not the commentor is a Bankruptcy attorney is irrelevant, given that Chrysler hired a group of bankruptcy attorneys to argue their side, and the non-TARP bondholders hired their own bankruptcy attorneys to argue the opposite side.
Pch’s analysis has been spot-on from the beginning and has now been further validated by the judge’s ruling.
Unfortunately, the commentors who choose to believe the “Socialist Takeover” theory are not going to be persuaded otherwise no matter what happens. The government wants to run Chrysler even less than it wants to run Citibank, which is, not at all.
As I understand things, there are now 2 weeks for bidders to come forward. Likely only one. Then the court has a week to review the bid and either approve it or disapprove it. It looks like $2 billion will come in and the parts of the company that Fiat/Treasury wants will go out.
Am I correct that the next step will be a conversion to a Chapter 7 liquidation? Because once the valuable assets are gone, I see little to work with to forge a reorg plan from.
If the liquidation starts, I am guessing again that the secured creditors should get everything that is left after any other assets are sold off or abandoned.
I wonder now if anyone is working on any theories to reach back to Cerberus for more money? I understand that Cerberus took the real estate out of Chrysler and kept it for itself – but my understanding is based only on blog rumor. So, Toxicroach, where are you?
And before anybody asks, I AM a lawyer and Have done a couple of chapter 11s, but they were small and a long time ago, so I do not consider myself much of an authority on this. Just an interested bystander with questions.
Make that Federal bankruptcy judge Arthur “Peg Boy” Gonzalez.
Those of you who believe that his name was drawn in a fair random procedure probably believe in Santa Claus. The boys from the Chicago Machine do not believe in luck, they believe in stuffing ballot boxes and throwing out petitions that do not “qualify” because they do not comply with “legal technicalities”.
If you do not have a video tape of the entire wheel procedure being run under the supervision of Nassim Nicholas Taleb, do not be fooled by the lack of randomness. It is no more random than a three card monte.
I am not sure the fat lady has sung, but I am damn sure the actors and musicians haven’t yet picked up their share of the receipts. I am not an optimist by nature, but I think the bond holders may still come out better off than the offer.
AnalogKid :
May 6th, 2009 at 1:34 pm
The issue of whether or not the commentor is a Bankruptcy attorney is irrelevant, given that Chrysler hired a group of bankruptcy attorneys to argue their side, and the non-TARP bondholders hired their own bankruptcy attorneys to argue the opposite side.
Very well said. Pch001’s boasting of his prior experience is pathetic.
Unfortunately, the commentors who choose to believe the “Socialist Takeover” theory are not going to be persuaded otherwise no matter what happens. The government wants to run Chrysler even less than it wants to run Citibank, which is, not at all.
No socialist will take over. It’s the people turning to the dark side during times of uncertainty, not unlike that of Star Wars or WW2 Germans.
I never said the government wants to run Chrysler. But it’s a fact the government wants to hand senior creditor’s collateral asset to the UAW.
wsn writes:
No matter how much is the bondholder owned, $6.9B or $690B, junior creditors such as UAW and the government (i.e. your cousin’s brother in law) should always wait until the first ones in queue (i.e. your wife, your children) gets paid in full.
Let us concede that the answer is basically “yes.” But then the question is, out of which pot of money?
The theory here is that we have two pots. Right now, the “old” pot (call it “Chrysler”) has a bunch of business assets and business liabilities (of different seniority), and a little cash which was recently thrown in by the government. Along comes another pot (let’s call it “New Chrysler”) who’s lined up another big cash loan from the U.S. Treasury, and proposes exchanging some cash for the business assets. The judge said that there are now two weeks for other bidders to step in with better offers, plus another week after the close of the auction to review what’s come in — it’s a fair auction. After the winning bidder’s check clears, the old pot has a bunch more cash, no worthwhile business assets, and a bunch of liabilities. We then have to distribute the cash in the old pot according to the bankruptcy rules. The non-TARP bondholders may or may not get more than the 29% recovery they were offered out of court before the bankruptcy began. That’s business.
The owner of the new pot, which is essentially the U.S. Government, proposes doling out equity shares in it to all sorts of people: Fiat, the UAW, the Treasury for later resale on the markets, etc. The fact that some of those people were also junior creditors to the old pot is not strictly relevant: They’re being paid off not by virtue of some sort of illegal queue jumping in bankruptcy court, but because the Administration likes them, and bought them a present by virtue of coughing up more dough. Run of the mill government handout — nothing to see here. We might debate the utility of such handouts (I actually see some sense in this one), but don’t dress it up as some sort of banana-republic expropriation, because it isn’t.
You almost summed it up in a follow up post:
I never said the government wants to run Chrysler. But it’s a fact the government wants to hand senior creditor’s collateral asset to the UAW.
I agree. It wants to hand the collateral asset over to the UAW. But only after paying a fair price for it.
For the “DIY BK lawyer” Pch001, here are some comments from licensed lawyers and law professors. Let here what’s their take:
Chrysler’s Greedy Hedge Fund Holdouts Get It Right: Ann Woolner
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Commentary by Ann Woolner
May 6 (Bloomberg) — You can call the plan to merge Chrysler and Fiat good for the economy. You can think it creative.
You can say it’s the start of “a vibrant new company,” as Chrysler LLC Chairman Robert Nardelli did last week.
But there’s one word that you can’t call the Chrysler bankruptcy package: legal.
The plan would overturn basic rules of bankruptcy by setting up a sort-of sale to sidestep pesky legal requirements. It would bulldoze well-established rights of secured creditors, property rights the U.S. Constitution guarantees.
So if U.S. Bankruptcy Judge Arthur Gonzalez follows the law, the Chrysler rescue plan dies. If he blinks and approves it, secured creditors everywhere should feel a shiver of unease, and quick sales of insolvent companies to avoid court scrutiny would multiply.
The other option is a settlement, and that might well be where this is headed.
I hate to say it, but the dissident Chrysler lenders are right, the ones President Barack Obama described as greedy hedge funds selfishly blocking Chrysler’s survival.
The president’s fist-waving looks a lot like the posturing lawyers use to scare an adversary into surrender, never mind the law. In fact, several are giving up the cause.
At the heart of the plan, and at the heart of the plan’s problem, is the idea that Chrysler would sell itself quickly rather than go through months or years of court-supervised reorganization.
Within 60 Days
Called a 363 sale for the relevant section of the bankruptcy code, it can close within 60 days and unload all or part of the company. The sale to Barclays of a piece of Lehman Brothers Holdings Inc. took about a day.
A 363 sale is perfectly legal when a sound business reason demands it and when it isn’t reorganization in disguise.
But if it’s aimed at resolving creditors’ claims, that is what reorganization is for. Bankruptcy reorganization promises secured creditors at least the same payout they would get if the company liquidated, and Chrysler’s proposed sale looks like a way around that.
Figuring what creditors have coming to them requires lots of paperwork and hearings. That’s why it takes so long.
Drawn-Out Bankruptcy
And that is what Chrysler is trying to avoid. In fact, it must avoid a long, drawn-out bankruptcy if it is to survive.
But with a 363 sale, there is no chance to figure the value of Chrysler’s assets if sold piecemeal, much less what each creditor should get.
The secured creditors who are complaining about this helped save Chrysler the last time it almost went under, in 2007 after the marriage to Daimler AG soured. How much of a haircut should they be forced to take?
The dissidents say the sale is nothing more than what bankruptcy law calls a sub rosa reorganization, a secret reordering dressed up to look like a sale, which the law forbids.
Plus, would it even be a true sale?
In public statements Chrysler says a United Auto Workers health benefits trust would get 55 percent of the shares of New Chrysler and a $4.6 billion note to satisfy some of the group’s unsecured claims against the company.
Paying nothing but offering its fuel-efficiency expertise, Fiat SpA would own 20 percent initially and could increase its stake by another 15 percent. The U.S. and Canadian governments, which are providing billions in interim financing, would own the rest.
Phony Sale
Chrysler is essentially selling itself to itself, says Lynn LoPucki, a law professor at the University of California, Los Angeles. He teaches secured transactions and maintains a database of major bankruptcies.
So, if the “sale” isn’t a true sale, and if it dictates payout to secured creditors, isn’t that a sub rosa reorganization?
If it favors junior creditors over senior creditors, doesn’t it violate the very basics of bankruptcy law? Senior creditors can volunteer to give up some of what’s due them but they can’t be forced to by a bankruptcy court.
“Those are property rights, and they are protected by the Constitution,” says Daniel Glosband, a partner in Boston’s Goodwin Procter. “You can’t just take them away.”
And yet, it could happen.
‘Enormous Momentum’
“There’s an enormous momentum in favor of the government plan,” says Jay Westbrook, who teaches bankruptcy law at the University of Texas.
It’s naïve to assume bankruptcy judges feel compelled to follow the law, says LoPucki.
He argues that bankruptcy courts across the country compete for the big cases by giving lawyers for major companies what they want.
“According to the law, this plan should not be approved,” LoPucki says.
Yet he predicts Gonzalez will do it anyway to persuade other companies (General Motors Corp. comes to mind) to pick Manhattan’s bankruptcy court over, say Detroit’s.
Already the Chrysler case is one for the books. You have the federal government sending a company into bankruptcy court, financing its reorganization, deciding who will get what, setting a strict timetable and urging a judge to blink at the law.
If the argument that Chrysler’s welfare is so critical to the national interest that longstanding laws can be ignored, what’s next?
Some future president will find a way to justify blatantly illegal conduct. Such as torture.
(Ann Woolner is a columnist for Bloomberg News. The opinions expressed are her own.)
To contact the writer of this column: Ann Woolner in Atlanta at awoolner@bloomberg.net.
Last Updated: May 6, 2009 00:01 EDT
So is this decision appealable? Or at what point can the bondholders first appeal this decision to a higher court? If an appeal is allowed, I imagine it would go to the federal circuit court, though I’ve never been entirely clear on the organization of bankruptcy courts.
NBK-Boston :
May 6th, 2009 at 2:37 pm
The theory here is that we have two pots.
———————————————–
That two pots theory is the core of the problem. Why two pots?
Legitimate creditors get residual asset from one pot in queue. That is the conventional way and there is nothing wrong with it.
Now that those at the end of the queue set up a second pot and a second queue and steal assets from the original pot and deny those at the head of the original queue access to their property.
here are some comments from licensed lawyers and law professors.
(This is what happens when you confuse a business discussion with a moral crusade.)
Both sides have their sets of arguments. A good lawyer could argue both cases effectively irrespective of whatever personal feelings that they may have.
We’ll see what happens, but so far, my predictions of what would happen here have been fairly accurate.
The cut-and-paste opinion piece (and that’s what it is, an opinion piece) misses the point that there are counterarguments, and so far, those counterarguments have been the ones that have prevailed.
Your statement re: absolute priority was wrong and it remains wrong. Courts don’t necessarily follow that path, and there is case law to support their decisions.
This is going to blow some of you away, but the world and court system are just not as black and white as you’d like them to be. Many of the arguments made in bankruptcy court by both sides are boilerplate arguments, and a good attorney could argue either one, depending upon who’s paying the bills. Individual circumstances dictate a lot of the real world outcome for something like this.
Thanks for posting that article from a real lawyer WSN.
And NBK-Boston, I must say that the secured lenders must be darned sure that “a fair price” is indeed being paid if they are to let this split go smoothly. The split is not a done deal yet. The job of the court is to assure maximum value is returned to the creditors. If there is any doubt that chapter 7 might return more to the secured lenders than this paltry 2 BN then I’ll bet this split won’t happen. Most lawyers whose opinions I have read state that the only way a quick bankruptcy will happen is if it’s uncontested. Much like a divorce, if there is a dispute about the value of the assets it must be worked out before a split can happen. I think either a settlement agreeable to the creditors probably about 50 cents/$ will be agreed upon in which case this 363 will happen without them fighting it or this thing will eventually end up in Chapter 7. Check out this video:
http://usat.gannett.a.mms.mavenapps.net/mms/rt/1/site/gannett-usatoday-206-pub01-live/current/launch.html?maven_playerId=immersiveproduction&maven_referralPlaylistId=8e268cb11203908ddaf61de8af24b4e3f6b392e8&maven_referralObject=1095090929&maven_referrer=staf
The lawyer in that video says there is no quick rinse cycle if a creditor wants to fight it out. He says making sure everyone has their claims heard is what a BK is about. I dare say that minimizing impact to the US economy isn’t part of a BK judge’s mandate. I also hold that attempts to let political will subvert the rule of law are more harmful to the economy than a chapter 7 would be. Banana republic theft of capital will result in capital flight. I am a GM bondholder who is buying more GM bonds daily and I will be a millionaire soon.
$668 million of other people money to payoff the UAW employees. More to come.
But no money for the bondholders in the US of Zimbabwe. (and nothing for the regular hard working guy) This is going to end badly.
Chrysler to spend $668 million on employee buyouts
By Mike Ramsey, BloombergMay 5, 2009
http://www.windsorstar.com/Business/Chrysler+spend+million+employee+buyouts/1565619/story.html
@Harvey Birdman: That is a big fat maybe. A final judgment, order, or decree is appealable to the US District court (unless the circuit has a BAP, which I don’t think the 2nd does), and interlocutory orders and decrees are appealable with the leave of the court (I think that means Peg Boy Gonzalez).
I would expect any district judge who overruled the Peg Boy to be found off the coast of New Jersey wearing concrete swim fins.
The essence of the cut-and-pasted article comes down to this:
A 363 sale is perfectly legal when a sound business reason demands it and when it isn’t reorganization in disguise… But if it’s aimed at resolving creditors’ claims, that is what reorganization is for. Bankruptcy reorganization promises secured creditors at least the same payout they would get if the company liquidated, and Chrysler’s proposed sale looks like a way around that.
The point that I am trying to make, along with Pch101 and the rest of those who are not extremely critical of the bankruptcy proceeding, is that we think Chrysler’s business assets have little liquidation value. The current recession, and the problems other automakers are having unloading brands and divisions (Saturn, anyone? How about Volvo?) are a strong indication of this.
It is also fair to believe the argument that a lengthy internal restructuring attempt is bound to fail. The only way this thing has any sort of chance going forward (and not a very good one, at that) is to get in a relatively healthy partner, like Fiat. But the only way to get them interested is to promise them a relatively speedy trip through the bankruptcy process.
With a small liquidation value putting a very low floor under what the non-TARP bondholders can reasonably expect as a recovery, and the need to keep Fiat interested being the solid business reason for speed, the case for a 363 sale is good. Good enough, in my view, that if the judge buys it, I would not run screaming into the hills about how the rule of law has come to an end.
Also, our columnist Ann Woolner is admitted to practice in which states, and attended which law school? I’m having trouble figuring that out after seaching the internet for a while. (Not that I care that much about credentials, but wsn was touting them, and laying great stock in them.
Well, the bondholder’s positions are certainly well represented here.
Taymere: I sure hope you’re buying those GM bonds at a deep, deep discount.
Schwartz: If you have any proof that Gonzalez’ selection was improper then please post it. Otherwise…
PCH & NBK: You guys have a lot of patience, much more than me.
WSN: Beware the dark side…I mean it, your posts are getting a little shrill.
Let’s all meet up in a couple weeks and we’ll see if anybody came forward with more than $2B.
I dare say that minimizing impact to the US economy isn’t part of a BK judge’s mandate.
You may dare say it, but the Congress and US Supreme Court have stated otherwise. “The fundamental purpose of reorganization is to prevent a debtor from going into liquidation, with an attendant loss of jobs and possible misuse of economic resources.”
The point you miss is that the results of these cases can vary, because there is different case law to support arguments on either side of the fence. BK judges have some discretion, and that is going to play a role in this instance. A huge company with a lot of high-wage jobs will be treated differently than a ma-and-pop liquor store that has trouble selling booze.
Here’s a test for all of us — if you can effectively argue the position that is opposite of your own, then you probably have a good grasp of the issues. If you can only argue for your own, then more research is required.
@AnalogKid: Schwartz: If you have any proof that Gonzalez’ selection was improper then please post it. Otherwise…
Otherwise nothing. Dude. I am an adult, I lived in Chicago for a number of years. I do not believe in Santa Claus.
The country is being run by made men from the Chicago machine (different than the Chicago mob, but not a lot). They do not leave things to Chance. Not random selections.
Back in the good old days. The wheel was a real wheel. When a case was filed at our county court house. The clerk would assign it to the name at the top of the wheel and then move the wheel one notch. If the clerk liked you, he could make sure you got the judge you wanted.
I haven’t been in the SDNY Bankruptcy courthouse in this millennium, but I am willing to bet a large sum that, whatever the “wheel” is, it can be set to any outcome a “high administration” official wants it to have.
As for “Peg Boy” Gonzalez, guys like him are a dime a dozen. I don’t know whether is motivated by fear, cash, or by a religious zeal to worship the Won who brings hope and change. But, I am sure that any bankruptcy judge with an ounce of self respect would slow this train down and insist on a full record before making a decision.
@NBK-Boston: “…The point that I am trying to make, along with Pch101 … is that we think Chrysler’s business assets have little liquidation value.”
That is your belief, I have no idea, but I know that “Peg Boy” Gonzalez doesn’t have one either. The difference between me and the Peg Boy is that I think a lot of diligence needs to be done. Of course if there were no value there, Fiat would not need the physical assets (the dies of the Sebring?) in order to create a new Chrysler (remember BMW just bought the name and the logo when the bought Rolls-Royce). Somebody is wrong.
Where to begin…
The idea that being a “made” politician in Chicago (whatever that means) carries any weight in Manhattan is ridiculous. Really. Obama isn’t even from Chicago.
That you think that a judicial decision you don’t agree with must mean that the judge is corrupt says more about your worldview than the facts of this case.
There will be a full record no matter what, and the parties are free to appeal if they think they have grounds to do so.
Your continued references to “Peg Boys” are beginning to sound a little suspect. Methinks you doth…think about Peg Boys too much.
Your Rolls-Royce analogy fails as the whole benefit to Fiat is to use the existing infrastructure (factories, workers and dealers) to make an entry into North America affordable. That doesn’t say anything about how much it’s all worth.
For what it’s worth, I grew up in Chicago. Your view of the politics is simplistic at best.
AnalogKid: Your Rolls-Royce analogy fails as the whole benefit to Fiat is to use the existing infrastructure (factories, workers and dealers) to make an entry into North America affordable. That doesn’t say anything about how much it’s all worth.
But it also suggests that it is worth something, and considerably more than a “little liquidation value” as NBK-Boston posted and others have suggested. We will soon find out…
But it also suggests that it is worth something, and considerably more than a “little liquidation value” as NBK-Boston posted and others have suggested.
It doesn’t, because the issue in a liquidation is the current liquidation value, not whatever future enterprise value might be created later. Liquidation value is the price that one would be obtained from a sale after a reasonable market time and to an arms-length buyer.
Whether Fiat ultimately makes nothing or earns ten gazillion bazillion dollars from its efforts has nothing to do with current liquidation value, any more than the liquidation value of my car has anything to do with whether I use it to get to my multi-million job on Wall Street or if I pilot it to McDonald’s to my burger flipping position.
The liquidation value is derived from what someone would pay for it, and there just isn’t much demand right now for used equipment from broken car companies. The holdout bondholders are arguing that the Good Company is underpaying. Since we know what’s being offered, it’s up to them to show that they have good reason to believe that the value is higher.
I suspect that corners will be cut in terms of the timing, in large part because of who’s behind the new venture. In the scheme of things, that may be unfair, with the government getting a calendar that not everyone else would.
But on the other hand, it’s difficult to argue with a straight face that there is a lot of unrealized value here. There’s no line out the door to buy Chrysler or its assets, and the situation is similar elsewhere in the industry.
It’s obvious that these alleged debates over value are stall tactics meant to encourage the government to sweeten the offer, because it’s clear that the government (and probably Fiat) want a fast resolution. It seems to me that the auction was the judge’s way to short circuit that tactic. The court has put the onus on the holdouts to produce an alternative that matches their story, and we all know that they can’t.
“For what it’s worth, I grew up in Chicago. Your view of the politics is simplistic at best.”
Yes, but not simple minded like people who believe that the SDNY and Peg Boy Gonzalez are paladins of justice seeking only the best interests of creditors and the American Way.
“Really. Obama isn’t even from Chicago.”
You must be one of the he is a Muslim from Kenya people.
“The court has put the onus on the holdouts to produce an alternative that matches their story, and we all know that they can’t.”
The burden should be on the proponent of the sale. The opponents have been able conduct discovery, nor to engage experts to investigate.
IT SHINES AND IT STINKS
PCH,
You are mostly correct about liquidation value, but it is incorrect to state that future earnings don’t matter. The liquidation value is very much affected by the earnings potential of those assets. A car factory may not be worth anything today without that value considered, so you have to consider that value somewhat. Otherwise it’s all just scrap metal and real estate.
The idea that no one is willing to speculate on the value enough to pay more than scrap and dirt value is a stretch in my opinion. So, the liquidation value is what the liquidation value is, but that value is going to reflect future earnings potential of the facilities and equipment.
it is incorrect to state that future earnings don’t matter.
It is correct when you are discussing **liquidation** value. Liquidation value is the price that one can obtain by selling the asset, not the value realized by the party using the asset.
Right now, I suspect that used auto factories are going cheap, cheap. The bondholders threw in the towel, when they realized that at this point that they would just be burning through legal fees for nothing.
You are ignoring basic economics. The price for any item is affected by the demand, and in this case, the demand is affected by the future earning potential. Otherwise, the value would be nothing for most items.
You must be getting confused by a technical definition which isn’t reflecting the real meaning. Definitions can’t always reflect the whole story.
If nothing else, the real estate has value, and that value is nothing without future use considerations.
Also, you cannot liquidate something for even a penny unless someone else values it. That value is always based on that persons perception of the value in the future. Otherwise, your items have negative value because you must pay to have those items hauled off, or accept that they detract from the value of the real estate.
In reality, no one ever pays for anything without consideration of future value. It’s a truism, believe it.
The price for any item is affected by the demand, and in this case, the demand is affected by the future earning potential.
You don’t get it, and you keep trying to redefine terms that have already been defined for both of us.
The issue of enterprise value is the value of the entire business, the theory being that the sum is greater than the parts (in other words, the value of the “goodwill.”) The liquidation value is the price of the bits if you sell them.
In an 11, the creditors are entitled at minimum to get what they would get in a 7, which means liquidation value. That’s why we’re talking about it, because this is the threshold value that has to be hurdled for the 11 to possibly be legitimate.
Liquidation value of used car factories is low right now. Not a whole lot of buyers for used equipment and bad brands when sales suck and there is no credit.
If you want to dispute that, show me some comps that disprove that. I ask you to do that because that is what the bondholders would have had to do, and the very reason that the bondholders just punted — they had nothing to use to defend their argument.
An appraisal could have come back with an even lower value. There is just nothing there. Not exactly the ideal time to sell the used assets of a broken company.
One more thing,
Nobody is saying that the liquidation value is zero, we’re just saying that it is very, very low. Sure the land the factory is on is worth something, but the issue here is that the non-TARP bondholders thought it was worth a lot more than they were getting. They just couldn’t come up with any evidence to support their claims.
PCH,
Once again, you are thinking I don’t get it, but I do. I totally get what the definition is, and what it means to you. I would think you would stop trying to tell me I don’t get it. The last couple times that has ended with me pulling quotes from earlier in the conversation to show you that you went off track. The problem isn’t that I don’t get it, it’s that you aren’t getting me. That is a team failure, and not either one of our faults.
You wrote this: “Whether Fiat ultimately makes nothing or earns ten gazillion bazillion dollars from its efforts has nothing to do with current liquidation value, any more than the liquidation value of my car has anything to do with whether I use it to get to my multi-million job on Wall Street or if I pilot it to McDonald’s to my burger flipping position.”
Your definition of liquidation value is based on what people will pay at time of sale, correct? What you can get for it, not what you might be able to make off it if you kept it.
Good.
Now, WHY WILL ANYONE PAY ANYTHING?
Answer: THEIR PERCEPTION OF FUTURE VALUE!
If you want to disagree with that, don’t argue anything else, and if you don’t disagree with that, then don’t ignore it either. Fiat is only willing to pay based on it’s own perception of future value.
One persons liquidation value is another’s future use value.
You can’t totally divorce the two concepts. The non-tarps are indeed disadvantaged because who else is going to step into this maelstrom and offer to buy the assets when they will be wasting their time doing so?
Your definition of liquidation value is based on what people will pay at time of sale
It’s not my definition, it’s the definition. I didn’t make it up.
Now, WHY WILL ANYONE PAY ANYTHING?
Answer: THEIR PERCEPTION OF FUTURE VALUE!
That’s wrong. The guy at Subway doesn’t pay a higher price for his bread than I do, even though he plans on using the bread to turn a profit while I just plan on eating it. Both of us will use our buying power to buy the bread that we want for as little as we can pay for it.
The ability to make a profit selling cars might create competition to buy equipment; the competition to buy it could make equipment more expensive in the future when that happens. But we’re talking here about the present, so that possible value in the future of equipment is meaningless.
In any case, your mixing things up. Today’s liquidation value is just that — the price that you get if you break it up and sell it, today. That’s what a Chapter 7 is going to yield to the creditors.
The creditors have no business arguing for tomorrow’s enterprise value while talking about liquidation in the near term. They’re just confusing the matter, trying to find justifications to inflate the price, because they know that the breakup value sucks and the theoretical enterprise value should be higher.
In any case, I think that you can see that they punted. It should be obvious why they did that. If the government wasn’t going to cave, the stall tactics were only going to get expensive for the holdouts, which would have defeated the purpose of fighting it out in the first place.
PCH,
1. It’s the definition you choose, so it’s your definition, if it were the only definition you would have a point, but it’s not, so you don’t. Both words have definitions, and your little group of people don’t get to tell the rest of the language speakers they have to conform. Forget it. The man on the street gets to use it how he sees fit without conforming to your master plan.
2. The guy at Subway buys bread at the price he can make a profit with. FUTURE VALUE. You plan to eat it. FUTURE VALUE. It’s all future value. No matter what the guy selling it calls his price, the folks buying are willing to pay their own FUTURE VALUE. No body gives a shit what the bakery’s accountant calls the number. Supply and Demand set values, not accountants. So when the accountants and lawyers who have put themselves into a bunch of jobs with these ridiculous schemes decide to call it purple haze it won’t matter either. The number matters, and the number is an estimate of what the asset will sell for. What something will sell for is always affected by the buyers’ willingness to pay. You can’t sell bread for $100 a loaf because no one sees a FUTURE VALUE of bread for $100 a loaf. If your so called experts appraise the bread at .10 a loaf, they are just being idiots because the buyers perceive the FUTURE VALUE of the bread at more than that. You can’t set prices in a vacuum, the buyers must help set the price, and they fix their highest price based on FUTURE VALUE.
(For those of you all still listening, this is why accountants and lawyers generally do not like sales people, because sales people live in the real world where these things matter. It’s a dirty grimy place which doesn’t conform to their perceptions. OTOH, sales people don’t like accountants and lawyers because they generally exist to add friction to the market place and even stop business that makes perfect rational sense for perfectly irrational reasons. Oh, and the accountants practice cheating sales people on their commissions, and the lawyers have made it so that they get away with it).
3. There is no present in sales. You cannot fix a value on the present because it goes by faster than you can agree on a price. A price is ALWAYS for use in the future. Otherwise, it’s not a price, it’s a settlement because you stole it.
4. I am not mixing things up. I am telling you a fact. You aren’t listening. I am not redefining your terms, I am telling you economic fact. Your terms are correct, but they are just labels. The underlying values are all based on FUTURE VALUE. It’s just that liquidation value is not based on future value of the enterprise, it’s based on the discounted future value tof other enterprises willing to buy the assets. You see?
5. The creditors have every right to argue both that the liquidation value was set to low, and that the theoretical enterprise value should influence that number. First, the whole process stinks all to hell since the executive branch of the US got their stinking paws all over it (both admins). Second, They may want to make a claim on Newco based on their seniority. It’s not fair for one group of creditors to set all the values, and tell another group what they should get. That is what the court is supposed to do, no?
6. Their caving does not settle the right and wrong of the matter, it settles their perceptions of what their best likely outcome will be. Choosing to hand over your wallet to a gunman doesn’t make you wrong to protest the robbery.
@ Landcrusher
For those of you all still listening
Yes, we’re here. Thanks you for the discussion.
The creditors have every right to argue both that the liquidation value was set to low, and that the theoretical enterprise value should influence that number.
This is the singular question is it not?
Cerberus denied operational detail because of their ownership structure, and we have to guess the PTFOA got the numbers and decided Ch11 rather than Ch7. So too Fiat after their “diligence”.
That would suggest in the sans debt New Chrysler, there is a nugget of an operating business (Chrysler do after-all sell some cars, ocassionally), and that therefore there is a future value being transferred.
Many of the current debt holders would appear to have been denied the ability to see the operational numbers. Maybe a Chrysler, sans debt, operating as Dodge/Jeep has potential to be a profitable niche car maker……
Who knows, I don’t think we have the information.
(For what it’s worth, for the industry as a whole, I believe capacity has to be removed. A Chrysler Ch7 would be a contributor to that process. Having said that, I still understand the need to keep the burning airliner aloft to crash out to sea however).
This is the singular question is it not?
It is only if you accept Landcrusher’s efforts to rewrite US bankruptcy law to suit his vision for it.
The long-run future value of the business just isn’t relevant in a Chapter 7 liquidation. I didn’t decide this, this is just what the law does. The trustee sells the assets — now — at what is supposed to be the current market price. If there is a business, they can continue to operate it temporarily if operating it facilitates the sale of the assets, but in a 7, the end game is to sell everything aside from whatever assets may be protected, and to pay the creditors with the sales proceeds.
That’s it. Whether the buyer of those assets ends up hitting a home run or whether he tanks is irrelevant. The trustee’s job is to get the market price that is available in today’s market. This goes back to the problem that the bondholders had in this case — that number was doomed to be low, given the economic environment. Pretty easy to see why they’d just give up.
I am telling you a fact.
No, you really haven’t. You’ve attempted to rewrite the laws of economics because the current ones aren’t working for you.
If an asset has a market value of X, a buyer isn’t going to pay 2X just because he could turn a profit with it after paying 2X. He’ll pay X because that’s the going rate.
If the market price is too high to allow for him to make a profit, then his response will be to avoid the purchase entirely. That doesn’t change the market value, but only the decision made to purchase or not purchase.
If the liquidation value of the acquired Bad Chrysler assets is $2 billion, Fiat isn’t going to pay $3 billion or $4 billion or even $2.1 billion, because it doesn’t have to pay more than $2 billion. Period. If the market price is $2 billion, Fiat will buy them from whoever will sell them for $2 billion or less. If Chrysler charges too much, no sale.
Again, we all need to understand the distinction between how we wish things were, and how they actually are.
Many of the current debt holders would appear to have been denied the ability to see the operational numbers.
Secured creditors typically have access to financial statements. I would assume that they had them, unless proven otherwise. Their loan documents would have likely had covenants that required the borrower to provide them.
The long-run future value of the business just isn’t relevant in a Chapter 7 liquidation.
You would have a point if I were considering Ch7 items for purchase for scrap metal. Weight x Price = Return. Very simple.
I MIGHT very well be a buyer, in the case of Chrysler, who intends to grab all or most of the operational asset components of “Jeep” for example in Ch7 (or Ch11). The price I’m prepared to pay is the price I perceive the risk/return is for the future.
I think this is Landcrusher‘s point, and something that does not appear to be being tested in Court.
The price I’m prepared to pay is the price I perceive the risk/return is for the future.
And in this environment, that price is low. Everybody expects higher yields than they did before. The price of a used-up car brand has fallen, just as the price of a machine has fallen.
If car brands have so much value, we would have seen the existing brands on the market commanding high prices after reasonable market times. That clearly isn’t happening.
Saturn? Saab? Hummer? Volvo? There’s no queue to buy these things. You have to practically pay people to take them. The value is token value at best, a reflection of an economic decline, coupled with the relatively incestuousness nature of the car industry which renders few operators capable of actually buying these firms. It’s not exactly among the most liquid of industries, particularly now.
Pch,
You will regret how rude you are being when you eventually clue in.
The market price is set by supply and demand. Supply is controlled by sellers, demand by buyers. Fiat is a buyer. You say they will buy at 2 billion. Why would they buy at 2 billion but not 3? (assuming they would not).
You know I took grad courses in econ, too.
Fiat is a buyer. You say they will buy at 2 billion. Why would they buy at 2 billion but not 3?
I understand your point, but in this context, it isn’t relevant.
The issue of Chapter 7 is the value now, or at least soon. If the New Chrysler is paying a fair price for the Bad Chrysler’s assets, then the bondholders have nothing to complain about in a court of law.
It’s as simple as that. Since establishing a higher value than the $2 billion is going to be damned near impossible, given the lack of activity, there’s nothing much to talk about. What the stuff might be worth five or ten years from now is not an issue in bankruptcy court.
The only hope that the bondholders had was if they could make this discussion of value take up so much time that the government threw in more cash to shut them up. When that ability to stall became less likely, the bondholders gave up. No surprise there.
Ok..time to lock the thread.
PCH,
What the stuff might be worth in 5 to 10 years is important because it influences the value of what it’s worth now. You either do understand my point, or you don’t.
That’s how the world works. Fiat is willing to pay 2B, because they think that in the future they will can make more than 2B with the assets. They may be willing to pay more. The job of the court is to ensure that one side did not conspire to take from the other.
I really love how you jump from the issue of what is right, back to what is reality whenever it suits your case. It’s very telling.
Allow me to summarize.
“The assets will be worth a lot one day, 2B is too low.”
– “Irrelevant.”
“No, it’s important, that means someone will invest in them”
– “That’s not what’s important, it only matters what they are worth today, and that’s the number that was declared.”
“But the worth today is a function of worth tomorrow.”
-“that’s not what the term means”
“I am not talking about the term, I am talking the value.”
– “you are making stuff up”
“No, that’s the way things work”
-“You can wish it so, but that’s your own little world.”
“It can’t work any other way”
– “Sure, but it doesn’t matter, you can’t PROVE it’s worth more, it’s too late, the whole thing is now in our world and we have the power to decide, Muhahahaha.”
What the stuff might be worth in 5 to 10 years is important because it influences the value of what it’s worth now.
Not really. An iPhone that costs $600 today might be worth a $1 in ten years. Doesn’t matter.
The current market price of the equipment at this moment is low. Not a whole lot of buyers. That’s all you, and the bankruptcy trustee, would need to know.
Oh, so now you use a consumer electronic device. Slimy, but not well thought out.
When you buy an iPhone, you buy a whole contract of phone and service. You wouldn’t buy the phone if the future value of that purchase were not more than the cost. That is basic economics.
In the case of the iPhone, you will use it to make money, or consume the value. EIther way, it will take place in the future, after you make the deal.
In the case of the assets of Chrysler, some will appreciate, others will get used up, some will lose value with time whether used or not. It doesn’t matter. It’s a business asset, so any buyer is buying it to make money in the future. Future value. Otherwise, they won’t buy at all. As you say, the market value is presently low because there are not many people thinking that making cars is a good idea. Those folks too, are calculating future value.
It’s a just a truism, you stepped in it, buddy.
I really like this one – “That’s all you, and the bankruptcy trustee, would need to know.”
Yes, the rest of us shouldn’t worry our little heads how the “market value” was set. Is that because it was set without actually trying to ascertain market value? Because as I have shown, market value will reflect future value.
Look, I don’t know why that you’re trying to rewrite bankruptcy law, but that’s basically what you’re doing.
I’ll tell you what: If you have good reason to believe that the assets being sold are worth more than what was offered, then prove it. Otherwise, enough already.
I am not trying to rewrite anything, so I need to prove nothing. That’s a really poor attempt at a straw man.
All I have been doing was pointing out that something you said was untrue because it undermined the greater point. The non-tarps are being treated unfairly. Saying that the 2B number is fair because someone unidentified to us says it was fair is just ridiculous. Saying that the future value of the assets has no bearing is misleading. Yes, present value is what is at issue. However, future value is important to consider in order to derive present value. Especially when the pool of potential buyers is so small, and the players are trying to cram the process through the courts in order to avoid reasonable objections.
I need to prove nothing.
You keep going on with your own unique extra-legal theories of what Chapter 7 should be, even though it isn’t. It’s kinda up to you to support it, since you’re the one trying to rewrite what it is.
You obviously have this theory of value, so support it. I know what you’re trying to say, but it just doesn’t match the bankruptcy code.
You can repeat it all you want. Still ain’t so.
I am not trying to rewrite anything, that would be you trying to rewrite the thread above this comment.
I have only enlightened everyone about how you gave the law meaning that it doesn’t have to support an argument. Without being able to dismiss future value, your argument fails. Sorry. You can define all the terms you want. There is nothing in the bankruptcy code which says that when determining present value, one should not consider market value. Market value is greatly influenced by future value, so future value is thus always considered. Period.
Let’s put this thread out to pasture with a little reality check. By now most of the non-TARP creditors have withdrawn their objections to the settlement and the ones that are left no longer have standing. What is the final outcome?
Not one piece of evidence or expert opinion was submitted to support a valuation of over $2B. Nada. Nothing. None. That is significant.
Now, to the subject of “future value.” Future value is a theoretical construct only. It is subjective and in my experience mostly used by salespeople to justify pricing that cannot be justified in any other way.
The best analogy, and one that I should have thought of earlier, is selling a used car. The price that one is willing to pay for a used car is what you think the value is today. You could say that the value should be lower since it is very likely that the car will depreciate. Will the seller accept that? Probably not. The seller will say that the value of the car is what it is worth on the market today; what the value might be tomorrow is irrelevant. If you’re selling a car, Landcrusher, are you going to discount your price based on what the buyer thinks the future value is going to be? I think not.
Just to take it a bit further, let’s say that I’m buying Landcrusher’s car to use to deliver pizzas. Since I will be making money through the use of the car, Landcrusher might argue that the car is worth more than the value today. Do I buy that? Not a chance.
The idea is the same whether it is a used car or a used car manufacturer. The “future value,” whether higher or lower, is simply not of consequence when establishing the purchase price.
Where future value is of consequence is when deciding to make the purchase in the first place. Then, the “future value” is called ROI, or Return On Investment. Calculating ROI is a black art in itself, though the value proposition for Fiat is fairly clear. It just may not work.
Wow, how can you not get it?
Can you use the car before you buy it? No. So the value you plan to get will be in the future. The market value of a car is set buy how many people want to own one versus how many want to buy one and how much they are willing to pay. The buyer may want to use it to get to work for a few years, to haul loads for pay, or to flip for a profit. All those things are future values. You and Pch seem to think that the people that write the blue book make those numbers up!
At any rate, different assets appreciate or depreciate whether used or not used or a combination of those things. I wouldn’t sell you a car if the only value you would get was negative unless you acted like a total jerk. I know sales people who would though.
Let’s say that all the cabbies are losing money. It’s going to be hard to sell a cab. However, the value of that cab TODAY – the LIQUIDATION VALUE – will reflect the value that cab will bring to the potential buyers in the future.