Greedy ass hedge funds screw up Chrysler deal!

[Joanne98]

By ZACHERY KOUWE and MICHELINE MAYNARD
The American automaker Chrysler will file for bankruptcy on Thursday, an Obama administration official said. The White House said President Obama and members of the auto task force would address the fate of the company at noon.

Last-minute efforts by the Treasury Department to win over recalcitrant Chrysler debtholders failed Wednesday night, according to people briefed on the talks.

An administration official said the government had the “full support of Chrysler’s key stakeholders” in its efforts to restructure the company and expressed confidence about Chrysler’s prospects for emerging stronger. But the official, who declined to speak for attribution ahead of President Obama’s announcement, made it clear that the administration was frustrated with the holdout creditors.

A key part of the restructuring plan involves the Italian automaker Fiat. According to people briefed on the talks, who requested anonymity because they were not authorized to speak for the government, Chrysler would file for bankruptcy first, then would present an agreement with Fiat to the court for approval, possibly on Monday.

A bankruptcy filing by Chrysler would be the first by one of Detroit’s three auto companies amid a devastating slump, and could serve as a preview of what a filing by General Motors might look like. G.M., which like Chrysler received federal assistance last year, faces a June 1 deadline for its own restructuring.

To win over several hedge funds, which have been holding out for better terms, the Treasury increased its cash offer to holders of Chrysler’s secured debt by $250 million, to $2.25 billion, these people said. If all of the secured holders would agree to the new deal, which would give them the cash in exchange for retiring about $6.9 billion of debt, Chrysler would still have a chance of restructuring out of bankruptcy court.

Several investment funds, however, continued to reject the Treasury’s sweetened offer at a vote of the lenders on Wednesday evening, people familiar with the talks said.

http://www.nytimes.com/2009/05/01/business/01auto.html

[Auggie]

1. Should we be surprised? The quest for profit is screwing up earth.

[angstlessk]

2. can't they 'hedge' their bets by investing AGAINST Chrysler?

I am not sure how this stuff works, but I cannot imagine they are simply not careing about the bankruptcy without there being and upside for the greedy bastards?

[Yupster]

6. The upside is that if the company goes bankrupt, the bondholders

get paid before the stockholders, so legally, they will get whatever's left.

BTW, this post is about the GM bond offer, not Chrystler's just to avoid confusion.

So why should they give up their strong legal position in bankruptcy court for pennies on the dollar. They will get that anyway from bankruptcy or maybe a little more.

The GM proposal demands they cancel $ 27 billion of debt for 10 % of the stock.
The government gives up $ 10 billion for a 50 % stake.
The UAW gives up $ 10 billion for a 39 % stake.

So why are the bondholders not going to go for this deal? It's not a reasonable offer.

The $ 27 billion of GM bonds are owned by 100,000 different investors. A typical bond investor owns maybe $ 10,000 - $ 25,000 of bonds.They have known they've been in trouble for years now. They probably also have bonds with 10-20 other companies too, and they understand that the law is on their side. Under bankruptcy law, they should get whatever is left of the company.

The worst case for them is for them to take the deal, and then the company goes bankrupt six months later and you go into bankruptcy court as a stockholder instead of a bondholder. In other words, by taking this offer, the bondholder loses at least 95 % of his money, and also goes to the back of the line for bankruptcy court instead of where they are now in the front of the line.

Therefore, I don't expect this offer to fly.

[Joanne98]

3. And they're going to push GM into bankruptcy too.

A committee representing bondholders of General Motors has proposed an alternative plan to restructuring the embattled automaker, in which the bondholders, not the government, would be in the driver’s seat.

Under Thursday’s proposal, G.M.’s unsecured bondholders would receive a 58 percent equity stake in the restructured company in exchange for tearing up their $27 billion in G.M. bonds, which are now trading at about one-tenth of that value. The United Auto Workers, through an entity known as a VEBA that holds workers’ health-care obligations, would get about 41 percent, and G.M.’s existing shareholders would receive 1 percent.

The government, which has extended billions of dollars in emergency loans to G.M., would receive no equity under the bondholders’ plan. Instead, it would remain a secured creditor of the reorganized company.

G.M. is hoping to avoid a bankruptcy filing by reaching an agreement for an out-of-court restructuring before a June 1 deadline imposed by Washington.

Chrysler, another struggling Detroit automaker, appeared to be on the brink of Chapter 11 bankruptcy protection Thursday after talks between the government and its secured lenders broke down.

The proposal that G.M. put forward this week envisioned that its unsecured bondholders would receive just 10 percent of the company for their debt, while the government would receive 50 percent in exchange for its $15.4 billion in secured debt plus an additional $11.6 billion cash infusion. The union would receive 29 percent under that plan, while existing shareholders would receive 1 percent.

The bondholder committee quickly rejected G.M.’s proposal, calling it a “a blatant disregard of fairness” that was “neither reasonable nor adequate.”

In making Thursday’s counterproposal, the committee said that its plan would save United States taxpayers $10 billion because the government would not have to infuse the automaker with additional cash.

“We do not believe that nationalizing one of America’s largest and most important companies is the right policy decision for our country,” Eric Siegert of Houlihan Lokey Howard and Zukin, a financial adviser to the bondholder committee, said Thursday in a statement announcing the counterproposal.

“Freed of its obligation to make cash payments to the VEBA or bondholders, the U.S. government would not have to convert any of its $20 billion in loans to equity and dramatically reduce the need to make additional loans.”

– Cyrus Sanati

http://dealbook.blogs.nytimes.com/2009/04/30/gm-bondholders-seek-majority-stake-in-counterproposal/

[Auggie]

4. ...just so they can get some of their money back.

They don't give a shit about long-term growth or saving jobs.

[Joanne98]

5. We need more info. They could have bought junkbonds.

We don't need the junkbond bastards screwing things up.

[Yupster]

8. GM bonds are junkbonds

They are rated CC which is far below the junkbond boundary line of BB or lower.

[Yupster]

7. The bondholders just loaned the company money

All they want is their money back.

Bondholders have no say in how the company is run. They don't care about long term growth or jobs.

They made a loan and want their money back.

It's pretty simple from their point of view, and the law says that if a company can't pay their loans back, the company goes bankrupt and any assets left goes to the bondholders to repay them in part.

So, for them it's pretty simple. You borrowed money. I don't know or care what you did with it, what you mismanaged or squandered, I don't care. Just pay me back. If you can't, then sell all your stuff and I'll take whatever little you have left, and make a note to myself never to loan you money again.

[upi402]

9. so... does this mean that corporatism is a bad thing???

huh...:shrug: who'd a thunk it