Chrysler to become "New Car Co."

[Jerk]

LOL!

http://www.marketwatch.com/story/treasury-sets-up-new-company-for-chrysler




WASHINGTON (MarketWatch) -- The Treasury Department said Friday it set up a new company to succeed Chrysler LLC. The new company, NewCarCo Acquisition LLC, is based in Wilmington, Del. On Wednesday, Treasury transferred $6.943 billion to the new company. Chrysler is in bankruptcy court seeking approval for a sale to Fiat SpA. Earlier, White House spokesman Robert Gibbs said the Obama administration is hopeful that the court will soon allow Fiat to complete its purchase of Chrysler.

[SicEmBaylor]

Wilmington, eha? Interesting.

[Dio]

Hmmm, what politician do we all know and loathe from Delaware? I just can't put my finger on it...

[Jerk]

As I read on the ticker forum, the federal government is putting their limited liability company in a state with known tax shelters.

RAR!:D

[JohnnyMack]

I'm a bit uneducated in terms of how bankruptcy law works. Is what's happening with Chrysler somehow different than what we'd see in any other type of reorganization?

[Jerk]

I'm a bit uneducated in terms of how bankruptcy law works. Is what's happening with Chrysler somehow different than what we'd see in any other type of reorganization?

Absolutely.

The bond holders had first priority in the event of bankruptcy. By contractual law, they were to be paid first if every asset in the company was liquidated. The government came in and took a majority of the company for themselves and the union, and gave 10 cents on the dollar to the bond holders.

So, don't be surprised if it becomes very difficult for a corporation with a large union workforce to raise money in the bond market now. At the very least, there will be a special high-risk 'yield' attached. Well, that is if the buyers aren't complete f*cking idiots.

Well...

People are still buying t bonds and there is no way we can pay that back without a major currency devaluation, so there are plenty of dummies out there.

[JohnnyMack]

I should have been more specific. I was aware of that stuff, I was talking about this LLC being setup. I was curious if that specifically was somehow different.

[Vaevictis]

The bond holders had first priority in the event of bankruptcy. By contractual law, they were to be paid first if every asset in the company was liquidated. The government came in and took a majority of the company for themselves and the union, and gave 10 cents on the dollar to the bond holders.

According to what I've read, this is a major misunderstanding in what actually happened.

If you go dig into the reports on the negotiations, what you'll find is that the Obama administration came in, figured out exactly what the maximum liquidation value of the company was, and offered it to the bondholders.

In other words, the Obama administration offered the maximum achievable return to the bondholders in the event of bankruptcy. Today. With no uncertainty, and no risk of lawyers eating it all up.

The bondholders tried to play hardball, assuming that Obama wouldn't let Chrysler go bankrupt -- but then Obama convinced them that he would. So they backed off. Additionally, there are political issues for a lot of the bondholders in that many of them also run consumer-facing operations in areas where Chrysler employs a lot of people. Those operations would have been negatively impacted if consumers in those areas decided that they were responsible for people being out of work and/or losing their pensions.

So, in other words -- no, the bondholders weren't denied their legal rights. They were offered the best deal they could hope to get should bankruptcy ensue, and they decided to take it once they realized that they weren't going to be able to negotiate any more.

[Vaevictis]

http://online.wsj.com/article/SB124242619480225209.html


Prof. Todd Zywicki is a noted and justly celebrated scholar of American bankruptcy law, but in his May 13 op-ed "Chrysler and the Rule of Law (http://online.wsj.com/article/SB124217356836613091.html)," he does not make his case for the proposition that the secured creditors have been unfairly treated in the Chrysler bankruptcy, or that the Obama administration challenges the rule of law.

According to Mr. Zywicki, the secured creditors, through "bare-knuckle tactics," are being made to agree to 30 cents on the dollar in violation of the absolute priority rule. But any bankruptcy lawyer knows that absolute priority applies only if a creditor votes "no" on the plan. If the secured creditors are agreeing to take 30 cents on the dollar, then by definition the concept of absolute priority is irrelevant.

Prof. Zywicki also claims that the Obama administration is denying creditors the right to vote by sponsoring what is known as a 363(b) sale, prior to confirmation of a plan. But this is standard practice in the Second Circuit Bankruptcy Courts and has been affirmed on appeal repeatedly for the last quarter century. It is not an attack on the rule of law to do what the Second Circuit Court of Appeals has so often declared to be appropriate.

The secured creditors are, after all, consenting to their treatment. Surely we can depend on the vulture funds that have bought up Chrysler's secured debt to see to their own long-term interest. Given that no one wants to buy Chrysler cars (which is why Chrysler is bankrupt in the first place), a 30% payout might be a good deal that turns a nice profit for the vulture funds.

Prof. David Gray Carlson
Cardozo School of Law
New York

[Vaevictis]

http://online.wsj.com/article/SB124199948894005017.html


When the issue of the $6.9 billion in debt came up, Mr. Rattner looked at the lending group and said, "We have in mind for you a much lower number." He silenced the room by proposing they get just $1 billion.

While that wasn't the administration's bottom line, the task force had determined what was: the amount lenders would get in a liquidation of Chrysler assets. A Chrysler analysis in January estimated that at $2 billion. The UAW and Fiat knew about this figure, and also knew that the task force was first going to offer lenders just $1 billion. But the lenders, having waited so long to engage with the Treasury, were in the dark.

(...)

In the following days, the lenders began to realize their leverage was small and dwindling. Only the government had the ability or willingness to finance a bankruptcy reorganization of Chrysler, while also supporting its warranties and suppliers and recapitalizing Chrysler Financial. None of the lenders, some of which had consumer operations in the Midwest near Chrysler plants, had any desire to take over and liquidate the company.

(...)

After receiving one more bank counteroffer, the Treasury on April 28 offered what it had planned all along, to buy out the lenders for $2 billion. The only sweetener was that it would be in cash, meaning the lenders didn't have to wait for a reorganized Chrysler-Fiat to pay it.

Mr. Rattner called Mr. Lee: "It's $2 billion, take it or leave it."

(...)

Mr. Lee was nonetheless intent on winning 100% approval from debtholders, to give the government the option of avoiding a Chrysler bankruptcy filing. He asked the Treasury to raise its offer by $250 million, which it grudgingly agreed to do if the lenders answered within 90 minutes. After a flurry of last-minute calls, about 20 firms, mostly small hedge funds, voted no.

At noon the next day, April 30, Mr. Obama said Chrysler would file for bankruptcy. He blamed "speculators" who had turned down the $2 billion offer for their $6.9 billion of debt. A lawyer for holdout firms, Tom Lauria, accused the White House of threatening to destroy the reputation of Perella Weinberg. The White House denied exerting pressure on it. Mr. Lauria's clients took their fight into bankruptcy court last week, imperiling the administration's plan to guide Chrysler into and out of court swiftly. But on Friday, the holdouts abandoned the fight as too costly, financially and politically.

"The overarching sense of political pressure," Mr. Lauria said, "remained out there till the end."

[Vaevictis]

In other words, the Obama administration offered the creditors about 10% more than they would have gotten in bankruptcy court as an incentive to make the deal fast -- but the creditors declined, and left money on the table.

The claim that order of priority in bankruptcy was subverted is just plain false.

[JohnnyMack]

So the money/position offered to the unions had NO effect on what the secured creditors would receive?

[Vaevictis]

The secured creditors agreed to be bought out at $2 billion.

Assuming the deal goes through and they get paid, whatever happens with the company after that is none of their concern.

[Vaevictis]

And really, to answer your question more directly, you just need look at the priority of distribution of assets:

(1) Secured Creditors
(2) Unsecured Creditors
(3) Equity Holders

These three groups get paid in order until no assets are left; sometimes this takes the form of liquidation of assets and cash payments, sometimes this takes the form of equity in the reorganized company.

The secured creditors have been paid $2b to settle their claims. They're out of the running for assets.

Next up is the unsecured creditors -- unsurprisingly, this ends up being mostly the unions because of the huge pension obligations.

Well, guess what? We're reorganizing, so the unsecured creditors get equity in the reorganized company. And the unions, holding the vast majority of the unsecured debt will naturally end up holding the vast majority of the equity.

If there's anything left at the end, the equity holders (eg, shareholders) might get something. But probably not.

------------------------------------------------------

The secured creditors, if they had desired, could have said "No" to the administration's offer. If they had done so, they would have jumped the unions and gotten the majority of the equity in the reorganized company; alternatively, they would have gotten the proceeds of liquidation, should that have occurred.

I don't know about you, but I don't want no equity in any American car company right now. I'll take $2b cash.

------------------------------------------------------

In short, no. What the unions get has nothing to do with what the secured creditors get -- the causality goes the other way. What the secured creditors get determines what the union gets, AND the secured creditors make the decision as to which way they want it to go.

[Jerk]

In other words, the Obama administration offered the creditors about 10% more than they would have gotten in bankruptcy court as an incentive to make the deal fast -- but the creditors declined, and left money on the table.

The claim that order of priority in bankruptcy was subverted is just plain false.


Interesting stuff. It is totally contrary to what I've read.

Sucks to be them. That is why my portfolio is in guns and ammo. Although the panic might have created a bubble that is waiting to burst once people finally figure out that Obama is not coming after their guns.

[AggieTool]

Hmmm, what politician do we all know and loathe from Delaware? I just can't put my finger on it...

Delaware is a common place to incorporate and process bankruptcy.

Something with the state's tax/fee structure.

[royalfan5]

Delaware is a common place to incorporate and process bankruptcy.

Something with the state's tax/fee structure.

Plus, since everybody goes there, the bankruptcy judges there tend to be more experienced with complex cases.

[MR2-Sooner86]

Meh, nothing to worry about, it's just Chrysler ;)

[Jerk]

Meh, nothing to worry about, it's just Chrysler ;)

Man, I sure do like the Dodge Charger.

I ain't going to buy it, though, if the government is building it.

[King Crimson]

Stalinism is right around the corner and the Bill of Rights has only been important starting 100 days ago.

some people need to grow the **** up and live with the reality being outvoted is part of free republics.

[Jerk]

Stalinism is right around the corner and the Bill of Rights has only been important starting 100 days ago.

some people need to grow the **** up and live with the reality being outvoted is part of free republics.

Hey, if you want to buy a Government Motors car or a new car from New Car Company, then go for it. It's still a free country...I think? I will freely chose not to buy a product from the same government which pays $800 for a fu**ing toilet seat.

Being outvoted wouldn't be a big deal if this were a true constitutional republic.

Well, that's dead, thanks to to things like an enhanced interpretation of the interstate commerce clause.

You guys who like the big omnipotent state ,and government in every facet of your lives are going to get your wish. I hope you like it. But enjoy it while you can, because a bond market crash is coming.

[King Crimson]

there ain't no "you guys" way too easy scapegoat in this poster.

[Jerk]

there ain't no "you guys" way too easy scapegoat in this poster.


"You guys" is anyone who is a statist.

Maybe you are not.

[Jerk]

And I'm not kidding about a bond market crash.

http://www.greenenergyinvestors.com/index.php?showtopic=6749&st=0&p=110721&#entry110721

[MR2-Sooner86]

Man, I sure do like the Dodge Charger.

Charger? I thought it was the bastard child of a 300C taking advantage of a Magnum.

[Jerk]

Charger? I thought it was the bastard child of a 300C taking advantage of a Magnum.

Blasphemer. There is a hot chick that looks like Megan Fox who drives one down Lake Hefner Speedway every morning during rush hour.


I almost had a wreck when I saw her.

It is orange - like Dukes of Hazard.

[Jerk]

Jimney Christmas, my bad.

I meant "Challenger," not Charger.

F*** a duck. I do need to get off the booze.

I've been drinking pineapple rum all damned day,