Posted on 05/02/2009 7:16:07 AM PDT by reaganaut1
President Barack Obama Blamed Chrysler's bankruptcy on "speculators," but the real problem was that the government's plan gave too much to the auto maker's unions and not enough to creditors.
If the secured creditors holding $6.9 billion in claims had been offered anything close to what the administration wants to give the United Auto Workers, there would have been no bankruptcy filing by Chrysler.
In the bizarre pecking order offered by the administration, the unions, which are at the bottom of Chrysler's capital structure, would get nearly full recovery value for their $10.6 billion retiree health-care claims, while the secured creditors at the top of the hierarchy would receive about 30 cents on the dollar.
Credit that to politics and a likely desire by Obama to reward the powerful UAW. After all, who in America really cares about a group of deep-pocketed banks and investment firms holding the $6.9 billion of Chrysler debt? "I don't stand with them," as Obama said of the dissidents who derailed the deal.
Another surprising aspect of the Obama proposal was the willingness of the Treasury to forgive a $4 billion loan to the company made in December in return for an 8% stake in the restructured auto maker -- an interest that could be worth only 20 cents on the dollar assuming new Chrysler's equity is valued at $10 billion.
...
Obama, meanwhile, asked little sacrifice of Chrysler's unions. The administration proposed giving them a $4.6 billion note yielding 9% due in 2022, and 55% of the equity in a restructured Chrysler. That could mean a nearly full recovery of their $10.6 billion claim.
The UAW was offered a lush deal even though its claim is junior to the claims of Chrysler's other major creditors, including the Treasury.
(Excerpt) Read more at online.barrons.com ...
For GM, the bondholders are owed $27 billion and the UAW $20 billion, but Obama wants the bondholders to accept a 10% equity stake in the new company while unions get 39%.
Chicago style.
Gee wonder what’s going to happen to the market for corporate bonds in the future? Good thing the taxpayers have deep pockets.
I’m glad someone was able to write about, shifting through all the fluff, to come up with the meat of this saga. Obama and the Dems are just paying back their core supporters, investors and the American taxpayers be damned! Look for much more of this in the future as this is only the beginning.
for later
The good news is that the unions will now own the problem and drive themselves out of business (even with government subsidies). Who is going to buy their cars?
This is pure fascism, and completely illegal. Man, we are up the creek without a paddle.
Thank God for Mark Levin.
As I see it, the UAW has just killed Chrysler, but managed to latch firmly onto the government teat.
As soon as they blow through whatever cash they have, they will be back for another handout. This time, the One is going to say "We have too much invested in Chrysler to let them fail."
There will be an endless string of bailouts.
[The good news is that the unions will now own the problem and drive themselves out of business (even with government subsidies). Who is going to buy their cars?]
You are missing an important fact - the 55% ownership is not the UAW, but their VEBA - set up to pay the retirees health and pension benefits.
This means that if the new arrangement fails the Pension Benefit Guaranty Corp will have to bail out the VEBA!
This means that the Chrysler VEBA has a Heads I Win, Tails You Pay outcome.
The taxpayer will be screwed twice!
We would have been better off giving the VEBA $10 Billion and CLOSING THE BUSINESS!
There's nothing bizarre about it... This is a payoff to the UAW, pure and simple. The Obamassiah HAD to give them the biggest cut to pay back for their "support" and to guarantee a permanent voting bloc.
By giving the company to the UAW, and keeping the Government as a minority investor, Chrysler would never be allowed to fail. The call would be "millions lose their benefits" and thus Chrysler could lose billions every year, and the Government would always bail them out.
And the UAW can use their ownership of Chrysler to not only pad their own membership roles, but can fatten the wallets of all UAW workers. Because when Chrysler - controlled by the UAW - rolls over easily to the latest UAW demands at strike-time, GM and Ford will have to match those payouts as well.
Really, in the land of Obamassiah, there is nothing bizarre at all...
Does bankruptcy change any of obowma/uaw shenenigans
Every Government agency will buy Chryslers, and you can bet that the Obamassiah/Pelosi/Reid triumvirate will do everything he can to "encourage" states and local Governments to buy Chrysler as well (or face loss of Federal funds).
If this plan goes through, Chrysler has been guaranteed eternal life, and Ford and GM have just been destroyed and will have to be "nationalized" to save them as well...
I was wondering the same thing. Doesn't a "risk of negative political intervention in bankruptcy" now become a much more important factor in bond purchases and trades? Any Freeper bond experts that can comment on this?
Depends upon the judge; bankruptcy is a Federal matter, so that means it will be under the Obamassiah's purview. You can guarantee that the judge assigned to that bankruptcy would look favorably upon the terms offered by the administration, and would be hard-pressed to not offer what is fair.
My guess is that either this deal goes through as our own Mussolini demands, or the bond holders and hedge funds will end up having to sue to Government for illegal takings, and have their money tied up for the better part of a decade.
In this financial environment, the desire and demand to simply settle and accept what the Obamassiah is offering will be incredibly strong. Many of the individuals making up those funds will want to accept half their value now, rather than fight for 6-8 years to potentially get - or lose - it all.
The problem remains. Chrysler will die. The cancerous mob rule unions are still malignantly killing it.
BUMP!
That...is what is going to be interesting. Possibly. WORTH WATCHING.
Very good article. Thanks for posting.
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