US Said to Prepare Filing for Chrysler Bankruptcy

[Lucky Luciano]

Source: New York Times

The Treasury has an agreement in principle with the U.A.W. to protect pensions and retiree health benefits as part of the filing, people with knowledge of the action said.


(I do not have a subscription to the times, but did see the blurb on my Bloomberg terminal - the crux of it is in the sentence above though.)

Read more: http://www.nytimes.com/2009/04/24/business/24chrysler.html

[maddezmom]

1. here is a bit more

Moreover, Fiat of Italy would complete its alliance with Chrysler while the company is under bankruptcy protection.

The only major question that remains unresolved is what happens to Chrysler’s lenders, who hold $6.9 billion in company debt. The government’s most recent offer, presented Wednesday, would give the company’s lenders about 22 cents on the dollar, or $1.5 billion, and a 5 percent equity stake in a reorganized Chrysler. Earlier this week, a steering committee of the lenders proposed that they receive 65 cents on the dollar, or $4.5 billion, and a 40 percent equity stake.

Officials at Chrysler and the Treasury were not immediately available for comment.

A bankruptcy filing by Chrysler would be the first among Detroit’s troubled automakers, who have been mired in a devastating sales slump since last fall. Treasury is also working with General Motors to prepare a possible bankruptcy case, and the terms of a Chrysler filing might offer a glimpse into the shape of G.M.’s own filing.
more:
http://www.nytimes.com/2009/04/24/business/24chrysler.html?_r=1&hp

[Romulox]

2. That's not how bankruptcy works. Which makes me think this is more gamemansship

"The Treasury has an agreement in principle with the U.A.W. to protect pensions and retiree health benefits as part of the filing"

A debtor in Chapter 11 can't assume debt that is not beneficial to the company going forward (such as "legacy" costs.) To do so would constitute a "preference" as to similarly situated creditors (i.e. other unsecured creditors.)

The government can shoulder the obligation, of course. But that has nothing to do with bankruptcy.

[Lucky Luciano]

3. However you choose to define it,

the pensioners and retiree's health benefits will be moved to the top of the capital structure with a government backstop while the rest of the company proceeds with a BK in the usual fashion. The important point is that the retirees will be protected according to the New York Times - if it is true, it will obviously be a big sigh of relief for retirees wondering if they would have to become Walmart greeters to make ends meet.

[Romulox]

4. No, again, bankruptcy doesn't work this way.

"the pensioners and retiree's health benefits will be moved to the top of the capital structure with a government backstop"

Only if the government agrees to take on the liability. The Bankruptcy Code (which is what defines it, not me,) will not allow Chrysler to assume the debt of the retirees while shedding the debt of bondholders.

[Lucky Luciano]

5. I read it as the government (Treasury) agreeing to take on the liability.

I guess that is not how you read it. The details are obviously not here and it is more of a news leak than what one can count on, so it is not clear - I will give you that.

[Romulox]

6. They don't need bankruptcy to do that.

"I guess that is not how you read it."

No, I read it the same way. The problem here is the government's agreement to do so has nothing to do with bankruptcy.

[Lucky Luciano]

7. oyyy...semantics....

Not sure if you prefer it to say, "In the event of a Chrysler Bankruptcy, the government would step in to protect the liabilities to the retirees."

So the statement is conditional on a Chrysler bankruptcy...and hence it has something to do with bankruptcy.

Phil Lebeau has been reporting about it on CNBC just now - not sure if you are watching - Lebeau is one of the few reporters at CNBC worth listening to. He does a good job and really knows the auto industry.

[Romulox]

8. No. The Bankruptcy Code is not "semantics".

"Not sure if you prefer it to say, 'In the event of a Chrysler Bankruptcy, the government would step in to protect the liabilities to the retirees.'"

Seeing as the above is likely an accurate statement, I would prefer it. The reason the distinction is important is this: bankruptcy does not enhance the government's ability to gratuitously agree to fund Chrysler's pensions. So the bankruptcy isn't intended (or designed) to protect pensions.