Posted on 05/01/2009 6:41:00 AM PDT by reaganaut1
The U.S. government's restructuring plan for Chrysler LLC is sounding alarm bells for those in the business of lending money who worry that the plan could subvert decades of standing legal precedent and investing principles.
Banks, hedge funds and other investors that hold $6.9 billion in secured loans are being asked to release their contractual claims over Chrysler's assets in exchange for a fraction of what they are owed. Many lenders see that as a raw deal, because in the bankruptcy code's priority scheme, secured creditors are supposed to get paid before unsecured creditors such as employees.
Investors worry the government-led plan could rewrite the rulebook on corporate restructurings and the entitlements of creditors. They say that could make lending more expensive for corporations, while crimping lenders' willingness to get involved with companies that have a connection to the government.
As of late Wednesday, about 20 of the 46 lenders were opposed to the government plan, according to a statement from a group of debtholders. If more than half the lenders oppose the reorganization, the Chrysler deal could be stuck in bankruptcy court for far longer than the government hopes.
"We lent money to Chrysler under a contract that gave us the first lien on its assets. There was no agreement that union members or other unsecured creditors could jump ahead of us in claims," said George Schultze, managing member of Schultze Asset Management, a distressed-debt hedge fund manager. "This is about contract and bankruptcy law, and upholding agreements -- which is important in the grand scheme of things."
On Thursday, President Barack Obama had harsh words for hedge funds and private investment firms that refused to take a big haircut on their secured Chrysler loans. Without their consent, the company had no choice but to file for bankruptcy protection.
(Excerpt) Read more at online.wsj.com ...
Ford is best served moving its production and sales focus off shore FAST. Once the UAW owns the means of production, they will call the shots with the supply chain. Guess who gets served first? It has become way too dangerous to capital to own capital intensive assets (manufacturing facilities) in the USA.
Frightening.
Imagine being FORD, your employees union owns your cometitor... nuts
This is a HUGE problem for Ford. They need to close their USA plants ASAP and get production off shore before the UAW screws them out of business. They have a strong dealer network but the UAW will destroy the American auto manufacturing base as it controls General Motors. Not a happy day for American industry but, frankly, the American auto manufacturing industry is not competitive anyway.
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