Who are the Evil Doers on the Chrysler Bankruptcy?

You couldn't have missed yesterday President Obama blasting some hedge funds when Chrysler went into bankruptcy.

 

Bankruptcy court has a funny way of naming names through public disclosure.

Some investors, including OppenheimerFunds Inc. and Perella Weinberg Capital Management LP’s Xerion hedge fund, bought the debt of the automaker before last July. On June 30, Chrysler auto loans were trading at about 49 cents on the dollar. Xerion, run by Daniel Arbess, OppenheimerFunds and Stairway Capital Advisors, were all part of the dissident group. Hedge funds including Elliott Management Corp. and York Capital Management LP, supported the government’s deal.

Perella and Xerion issued a statement yesterday after the president’s comments saying it accepted the government offer and would attempt to persuade other lenders to do the same.

The New York Times is listing 17 organizations who held out making a deal so Chrysler went into bankruptcy:

Perella Weinberg and 17 other financial firms — including OppenheimerFunds and Stairway Capital, a hedge fund that specializes in troubled companies — rejected the administration’s plan. It was, they argued, simply unfair.

One of the creditors mentioned by Bloomberg is the Bill & Melinda Gates foundation. Wouldn't it be most interesting is they were one of the deal hold outs?

The conservatives are railing on Chrysler at this point and I cannot blame them. Why was Chrysler, a privately held company, not allowed to simply reorganize in bankruptcy in the first place?

I also have heard much ado about the Obama administration protecting the UAW pensions and health care. I'm sorry but what is wrong with protecting a last hold out on retirement for workers?

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The investor class should stop their whining.

We are talking exceptional circumstances. I am not a bankruptcy expert but if Chrysler was allowed to go into bankruptcy without some of these pre-arrangements then pension fund and VEBA obligations would be treated as unsecured creditors and basically get nothing. So tens of thousands of employees and retirees would be w/out health care and probably pensions.

Investor class is whining about favoritism. Sure, President Obama was not going turn his back on UAW. He can't afford to but this also a decision that eliminates or possibly postpones another severe shock to the economy - massive layoffs and hundreds of thousands of people w/out health care benefits.

Investor class can absorb the losses through our tax code and probably hedged their losses w/CDS. Workers don't have such options.

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talking head "commentary"

I heard complaints about how the government stepped in as political payback to the UAW for protecting their pensions and health care.

The whine was how most Americans do not have pensions, have jack shit on retirement, how worthless 401ks, etc.

I am thinking, yes that is true but does that justify screwing even more workers out of their retirement?

Uh, UAW you can't have retirement because the rest of America is screwed on retirement?

I think those hedge funds placed bets the company would be liquidated....just like the corporate raiders in the 1980s and so on...and they are pissed because much less return on their money.

I say screw 'em and that entire practice of swooping in and buying debt etc. in hopes the company goes bankrupt and thus these private equity/hedge funds can pressure for liquidation because they are secured creditors should be stoppped, period.

How many smaller companies, manufacturing, capital intensive companies has this practice destroyed?

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I wonder how much of bondholder's carping

just a matter of principle or show and how many have CDS positions? Because if they have CDS positions they definitely would've been pushing for bankruptcy.

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interesting

That would make a most interesting view point. Just how many of these banks were making huge money by not only doing predatory, inflated lending, but then placing bets on those very loans defaulting?

Nice rigged game and the only loser is the homeowner.

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How much did CDS warp or distort credit markets?

Does a creditor care very much about credit quality if they have an insurance policy for default? Does it totally change the valuation of risk? For creditors w/CDS it becomes totally a matter of counterparty risk. Credit/default risk is gone.

How does this effect future corporate defaults/bankruptcies? Are we going to see more companies forced into bankruptcies because of CDS?

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Depends

An investor who buys debt on say 40 cents on the dollar versus one who pays say 80-90 cents on the dollar. The premiums on CDSes on those lower priced ones will be substantially higher.

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Its really a gamble

First off, its too late to offset with a Credit Default Swap at this point if they haven't done so already. These "rebels" actually do have two valid points:

1) Legally, these creditors should be higher up on the claims list in recovering what they can. What the government offered and what they can, by law claim, the spread is enormous. The government offered about 33 cents on the dollar knowing that in a normal bankruptcy, these folks would probably end up with more than that (this assumes asset sales). Estimates I heard was between 45 cents to 90 cents on the dollar.

2) Many of the firms aren't hedge funds, but vechicles for pension funds. They may be mandated by the bylaws of their charters to pursue the maximum amount in recovery. The managers of these firms could face lawsuit because they could be seen as violating their fiduciary responsibility.

You as a bondholder, by law, have higher priority than many others. In the case of an automaker, your senior debt would be higher than the liabilities from a labor agreement. I can see the anger, but the President should not be bashing bond holders. They are simply going by what the law tells them what they're rights are.

Ok, now that I've gotten this out of the way. Let me tell you where they may have made a big mistake, a la the "gamble." For starters, most of the creditors have already agreed to the government's terms. It wasn't all the bondholders that said no, indeed it was over half (as of this morning, some have been reversing course). The banks will not object, they probably where the first to offset with a CDS. Hedge funds and pension fund managers worth their salt probably did the same. Lastly, many of these firms will simply write this off as a tax loss.

The judge has a lot of leeway here. But, like I said, these debt holders are senior in claims. But the judge can say "yes but over half of the creditors are willing to take a shave." The judge needs to preside over an orderly chapter 11 procedure, which is the payment of creditors while keeping the going business concern. If he sees that meeting the bondholders to their maximum recoverable levels would require liquidating assets beyond the critical point that keeps the company alive, he may take a different route.

Now these confederates could go and push to the hilt and essentially drive Chrysler to Chapter 7, complete liquidation, but then they would run into political risks. This is not normal times. We are in an era where government is taking a more active hand, to say the least. A year ago, we had two seperate banking industries (commercial and investment), today we have the government owning half of a unified financial industry. Who is to say, given political pressure, that the government doesn't take steps to do to these institutional investors what they did to the banks?

Trust me, the last thing they want, is Uncle Sam finding a way to be part owner or dictate their pay. But if liquidation comes to Chrysler, it raises the odds that we could see the same for GM. How? If the courts agree with these bond holders, then those holding GM debt will have presidence. At this point, Washington is going to have to face a stark reality...that these pension funds and hedge funds could spark the anhilation of an industry. Ok, that's a bit drastic, because we would still have Ford (and whatever domestic start up automakers are left like Tesla). Now this site showed a map what would happen if we lost GM and Chysler. This would be a political nightmare and would move to stop this. Many would demand some kind of retaliation against those who helped liquidate these companies.

Wall Street knows this, which is why you didn't see a uniform vote on the this issue. They don't want to see a "retaliatory move" by the government. Which is why I them sabotaging these confederate investors.

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so long term

I've read routinely Chrysler just isn't viable.

Are Fiat cars in Europe that awesome and cool and this is a way in, avoiding tariffs and trouble, to retool the existing plants to make those little cool pooter mobiles?

If so, that sounds like a fairly good game plan, although I know Jeep has some serious loyalty due to their offroad 4x4 capabilities.

But if they are going to continue to make these same vehicles? Dodge has a following too but to me the Dodge trucks just "pour gasoline on the ground" which is why I never looked at them.

So, the financial media has this story right then. They are calling it a game of financial chicken and somebody is at risk of getting run over.

On GM, Bloomberg is GMAC investors are being told to "sell their debt" on a possible GM bankruptcy. Story just broke.

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Sounds right, long term.

I saw this article last night.

The future of any car manufacturer is new product. According to some Chrysler managers who have "retired" in recent months, chairman Robert Nardelli focused on cash flow at the expense of product development. Most of Chrysler's recent offerings have been badge engineered: essentially old products given new nameplates. Chrysler trashed the Jeep name with the Patriot and the Compass; the Dodge name with the Caliber and Nitro; and the Chrysler name with the Sebring and Aspen.

I think the Gov't helped the UAW get their last, best hope.

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