Chrysler to File for Bankruptcy

[The Minsky Moment]

Heard on the radio that the secured bondholders caved under threat of having their identities revealed.

They would have to reveal their identities anyway if they wanted to make claims in a bankruptcy proceeding.  Smells a little fishy to me.

[Savonarola]

Heard on the radio that the secured bondholders caved under threat of having their identities revealed.

They would have to reveal their identities anyway if they wanted to make claims in a bankruptcy proceeding.  Smells a little fishy to me.

They had asked to have their identities kept secret; they claimed they had received death threats.

[The Minsky Moment]

They had asked to have their identities kept secret; they claimed they had received death threats.

That's all very exciting, but what did they think would happen if there was a bankruptcy?  You can't go to bankruptcy court and say "Hi - I am Mr. X - I have a security interest in this big pile of inventory here - hope you don't mind if i just walk off with it."  You have to prove your security interest and make public filings, and you can't do it under a pseudonym.

[The Brain]

Not even a funny one?

[MadImmortalMan]

If I were a bondholder, I'd have gone public and been a hero for scuttling the deal. Death threats be damned.

[DontSayBanana]

I'm not shedding any tears for the unsecured bondholders.  But it seems the secured bondholders basically got blackmailed into signing off on the deal.

I'm surprised we're not criticizing the media hype of this more; these disclosures are required with every bankruptcy filing, and it's just the media attention that has drawn the radical nuts to this issue in such large numbers. This is not the first messy bankruptcy, nor will it be the last. I'm also fairly sure it's not the first bankruptcy to involve a company that's been effectively subsidized by the government.

Without seeing the disclosures firsthand, I'm going to presume that these secured creditors were not shafted, that they were given fair liquidation value (that they would try to claim more than such value, citing government subsidies, is more than a little silly), but those are beside the point. The "shaft" came in the form of a decision that the rules would not suddenly be changed for a handful of bondholders to compensate for bad press.

[alfred russel]

If I were a bondholder, I'd have gone public and been a hero for scuttling the deal. Death threats be damned.

I think a few bondholders tried, but their problem was that a significant majority of the bondholders didn't want to go along, which may or may not have been influenced by a significant majority being TARP recepients. It is one thing to tell the government to shove it, it is another to tell the government to shove it when you only exist at their sufferance.

[Hansmeister]

They had asked to have their identities kept secret; they claimed they had received death threats.

That's all very exciting, but what did they think would happen if there was a bankruptcy?  You can't go to bankruptcy court and say "Hi - I am Mr. X - I have a security interest in this big pile of inventory here - hope you don't mind if i just walk off with it."  You have to prove your security interest and make public filings, and you can't do it under a pseudonym.

The problem is that the threats came from the Obama administration, which threatened to use the WH press corps to go after the creditors.

[Hansmeister]

I'm not shedding any tears for the unsecured bondholders.  But it seems the secured bondholders basically got blackmailed into signing off on the deal.

I'm surprised we're not criticizing the media hype of this more; these disclosures are required with every bankruptcy filing, and it's just the media attention that has drawn the radical nuts to this issue in such large numbers. This is not the first messy bankruptcy, nor will it be the last. I'm also fairly sure it's not the first bankruptcy to involve a company that's been effectively subsidized by the government.

Without seeing the disclosures firsthand, I'm going to presume that these secured creditors were not shafted, that they were given fair liquidation value (that they would try to claim more than such value, citing government subsidies, is more than a little silly), but those are beside the point. The "shaft" came in the form of a decision that the rules would not suddenly be changed for a handful of bondholders to compensate for bad press.

Since the secured bondholders receive less than the unions for their unsecure claim is prove in itself that the creditors were shafted.

[The Minsky Moment]

Since the secured bondholders receive less than the unions for their unsecure claim is prove in itself that the creditors were shafted.

It is evidence of it but not proof in itself.  You would have to look at the benefits the union settlement brings to the reorganized entity.

[DontSayBanana]

Since the secured bondholders receive less than the unions for their unsecure claim is prove in itself that the creditors were shafted.

Bullshit. The secured claims are processed according to the terms when the collateral was fronted; the unsecured claims are processed according to the value of the company's assets immediately prior to the bankruptcy- they're two totally different beasts.

[Neil]

Since the secured bondholders receive less than the unions for their unsecure claim is prove in itself that the creditors were shafted.

It is evidence of it but not proof in itself.  You would have to look at the benefits the union settlement brings to the reorganized entity.

It allows the unionized employees a couple more years of sucking on the teat before the company collapses once and for all?  After all, no matter how much money you pump into the company, you can't make up for the fact that Chrysler doesn't make any cars worth buying.

[The Minsky Moment]

Since the secured bondholders receive less than the unions for their unsecure claim is prove in itself that the creditors were shafted.

Bullshit. The secured claims are processed according to the terms when the collateral was fronted; the unsecured claims are processed according to the value of the company's assets immediately prior to the bankruptcy- they're two totally different beasts.

The secured creditors get the value of their collateral AND and unsecured claim for whatever is left over.  So all else equal it is a bit odd for an unsecured creditor to make off with a higher % recovery than a secured one.

Of course, when its a Chapter 11, and the unsecured creditor is also an essential supplier, it may play out a little differently than according to Hoyle.

[Admiral Yi]

Maybe so, but from where I sit--which is an uninformed chair--they weren't pressured to give up more than they would have been entitled to in a liquidation; they were pressured not to demand a handout with the threat they would create a messy bankruptcy process.

Perhaps I've been operating under a huge cloud of misinformation, but here's how I thought it worked:

I own a $100 Chrysler bond.  I also purchased a credit default swap which pays off if Chrysler is liquidated.  If I accept 20 cents on the dollar in a voluntary settlement the CDS issuer laughs in my face and owes me nothing.

So the issue as I saw it was not whether they were forced to accept liquidation value but whether they were forced to give up CDS value.

It's also possible I've been using "secured creditor" when that's not the correct term.

[The Minsky Moment]

CDS are privately negotiated so what may constitute a triggering event may vary - a bnakruptcy filing is not necessarily required.

There is no connection between status as a secured lender and holding CDS (although secured lenders may indeed also be CDS holders)

A secured lender is just a lender who has obtained a secured interest in an identified asset in return for a loan.  Just like a mortgage in the RE context.  In the case of Chrysler it might be some equipment, or inventories of unsold cars, or real estate holdings, or receivables owed to them.  Holding a CDS is not a secured interest.