Chrysler to File for Bankruptcy

[DontSayBanana]

You seem to be the one with ADD since i originally pointed out that Obama was blaming the evil capitalists for failing to fall on their swords.  Funny that those small investors didn't want the government to illegally confiscate their property.  People can be silly like that.

There's a big difference between falling on a sword and trying to manipulate a government aid program for benefit. METAPHOR FAIL.

[Neil]

You seem to be the one with ADD since i originally pointed out that Obama was blaming the evil capitalists for failing to fall on their swords.  Funny that those small investors didn't want the government to illegally confiscate their property.  People can be silly like that.

There's a big difference between falling on a sword and trying to manipulate a government aid program for benefit. METAPHOR FAIL.

Everyone manipulates government aid programs.

[DontSayBanana]

@Neil: even if you discount the guy, I had prior knowledge of this. The principal actor I'm thinking of was trying to cook the books to receive bailout by hiding a couple million dollars' worth of profit. They wanted to look like they were about to run dry, even though they had hedged cash of 28 million dollars above their operating expenses.

[Hansmeister]

You seem to be the one with ADD since i originally pointed out that Obama was blaming the evil capitalists for failing to fall on their swords.  Funny that those small investors didn't want the government to illegally confiscate their property.  People can be silly like that.

There's a big difference between falling on a sword and trying to manipulate a government aid program for benefit. METAPHOR FAIL.

You really are quite clueless.  It is their right to demand payments on their bonds - that's why they're bonds.  if crysler is unable to pay then a bankruptcy court has to determine the equitable distribution of assets to the debtors - not the President deciding to hand over the majority of the assets to his union-buddies, who have less of a claim to the assets under the law and keep the rest of it for himself.  Nor does the President even have the authority to do so - it was neither granted to him by Congress, nor is it a constitutional power.

It is pure and simply corruption by the President.

[DontSayBanana]

You really are quite clueless.  It is their right to demand payments on their bonds - that's why they're bonds.  if crysler is unable to pay then a bankruptcy court has to determine the equitable distribution of assets to the debtors - not the President deciding to hand over the majority of the assets to his union-buddies, who have less of a claim to the assets under the law and keep the rest of it for himself.  Nor does the President even have the authority to do so - it was neither granted to him by Congress, nor is it a constitutional power.

It is pure and simply corruption by the President.

Name-calling isn't helping your case, dude. You're partially right; they have every right to demand repayment... from the debtor. Largely, these people tried to bypass Chrysler and wanted the money straight from the government's hide.

What you're failing to understand here is we're not talking about creditors who demanded repayment from the debtor, we're talking about guys who are being forced into another round after getting smacked away from the government teat.

[Hansmeister]

You really are quite clueless.  It is their right to demand payments on their bonds - that's why they're bonds.  if crysler is unable to pay then a bankruptcy court has to determine the equitable distribution of assets to the debtors - not the President deciding to hand over the majority of the assets to his union-buddies, who have less of a claim to the assets under the law and keep the rest of it for himself.  Nor does the President even have the authority to do so - it was neither granted to him by Congress, nor is it a constitutional power.

It is pure and simply corruption by the President.

Name-calling isn't helping your case, dude. You're partially right; they have every right to demand repayment... from the debtor. Largely, these people tried to bypass Chrysler and wanted the money straight from the government's hide.

What you're failing to understand here is we're not talking about creditors who demanded repayment from the debtor, we're talking about guys who are being forced into another round after getting smacked away from the government teat.

It was the gov't that wanted to buy them out so that they coukld take control of the company, so the bondholders have every right to demand to be paid for what they believe is the fair value of the bonds.  For obama to turn around and demonize the investors for refusing to cave in to his offer is sheer thugginesh,.  Obama is acting like a mafiosi instead like a President.

[DontSayBanana]

OK, break out the tinfoil hats, kiddies.

Hans, at least try to keep your paranoid delusions from getting tangled together.

It was the gov't that wanted to buy them out so that they coukld take control of the company

No, UAW has the controlling interest in the company now- if anything, it could be argued that the company is in the hands of lobbyists.

http://www.uaw.org/news/newsarticle.cfm?ArtId=536

the bondholders have every right to demand to be paid for what they believe is the fair value of the bonds

No, secured bondholders have the right to an amount based on the collateral they've fronted.

http://www.sec.gov/investor/pubs/bankrupt.htm

For obama to turn around and demonize the investors for refusing to cave in to his offer is sheer thugginesh,.  Obama is acting like a mafiosi instead like a President.

On the contrary. He had every right to be miffed by the couple of thugs who came in and sabotaged the deal, holding up repayment for all the creditors.

Your arguments have got no teeth, Hans. I want to see claims more solid than your usual array of pundits that the government, and not the bondholders, were the ones trying to strongarm their way through this deal.

[Admiral Yi]

Hans, shut it. Not only did the UAW take a hit on their collective bargaining agreement, in doing so, they're taking a 55% share in Chrysler, so they're taking on a hefty burden in addition to relinquishing some of their compensation.

If you had actually bothered to listen to Obama's comments earlier, he was oddly specific about who the holdouts were- largely hedge fund managers who were holding out against the prospect of bailout compensation.

What burden are you referring to?

What do you mean by bailout compensation?

[citizen k]

Funny that those small investors didn't want the government to illegally confiscate their property.  People can be silly like that.

More silly small-time investors, this time GM bondholders  :

GM bondholders protest plan
   
By SARAH A. WEBSTER
FREE PRESS AUTOMOTIVE EDITOR

Ted Dobski, 65, did a lot of research before he invested a fourth of his retirement savings in GM bonds about five years ago.
Bonds, he figured, were less risky than stock, and as someone who retired from GM after 33 years, he never doubted the company would deliver as promised.

"I thought the company was solid as a rock," said Dobski, a former senior buyer in GM's purchasing department.

But now, Dobski and other GM bondholders stand to see the value of their investment slashed as President Barack Obama's automotive task force helps GM, which is operating on a $15.4-billion federal loan, restructure its debt, along with other aspects of its business, so it can survive long term.

More than 200 of these average investors — many of whom are retired salaried and hourly workers at GM — turned out today to protest the plan at Warren City Hall.

The event was organized by the 60 Plus Association, which is an advocacy group based in Alexandria, Va., that bills itself as a "conservative alternative to the American Association of Retired Persons."

The 60 Plus Association is now forming a group called the GM Main Street Bondholders Coalition.

According to event organizer Steve Mitchell, one-fourth of all GM bondholders are "average American citizens" who invested in the bonds to pay for their retirement, college, medical expenses and small businesses, and they have been shut out of the negotiations about GM's future.

Under the current GM restructuring plan, investors like Dobski will be given a small stake in the company in return for the debt they are owed. Under that plan, bondholders would get stock and cash that GM values at about 11 cents on the dollar of the bonds. Earlier this week, a group representing large bondholders complained the company offer was "neither reasonable nor adequate" pointing out that that UAW was receiving more than three times the value for the debt the company owes the union for funding health care.

The U.S. government does not view the offer from GM as a "negotiation," said a source familiar with the discussions.

With shares of GM were trading at $1.81 midday, Dobski has no hope that he'll ever get back what he's invested. And he doesn't expect it will ever be enough to support his retirement, as he had planned.

"Not in my lifetime," Dobski said.

Dobski said that he and his wife, Elaine, have been frugal their entire lives, carefully saving and planning their investments over the years. Losing the income they had expected to receive from GM bonds will only make them more so.
"It's just going to make things tighter," said Dobski, who has been raising extra money by driving a car for a transportation company. "We're not going to be able to do some things, and at 65, that's tough."

[Hansmeister]

The WSJ again:

Chrysler Goes to Court
Bankruptcy – not Treasury – is the fairest venue for all parties..Articlemore in Opinion ».EmailPrinter
President Obama's broadside against bankers yesterday illustrates better than any argument ever could that bankruptcy court, and not the political arena, is where Chrysler belongs. Yesterday's filing isn't the end of the U.S. auto industry, or even necessarily of Chrysler, and it offers the best chance to protect all parties under the rule of law.

"I don't stand with those who held out when everyone else is making sacrifices," Mr. Obama nonetheless declared, blaming what he called "a small group of speculators" for the car maker's Chapter 11 filing. To hear the President tell it, you'd never know that Chrysler had borrowed, and since frittered away, the $6.9 billion that it owes to those "speculators." The Administration had only offered $2 billion to those secured creditors as part of its proposed restructuring for the car maker. So it's hardly a surprise that many lenders would rather take their chances in bankruptcy court.

Chrysler's finances can now be restructured in a less political atmosphere in the New York courtroom of federal Judge Arthur Gonzalez. This is how the Chrysler collapse should have been worked out last December, when the auto maker first went looking for taxpayer cash. Treasury could have saved the $4 billion it lent the car maker at that time, to which we can now add another $8 billion that Mr. Obama promised yesterday to keep the company going.

The Administration is hoping the judge will do little more than rubber stamp the restructuring deal it has worked out among the Treasury, the United Auto Workers and the Italian car maker, Fiat. It could play out that way, if Judge Gonzalez determines that $2 billion is the highest and best value that can be obtained for Chrysler's assets.

But that is now the legal test that the Administration's plan must satisfy, not the political standard of whether the creditors "worked constructively" in a spirit of "shared sacrifice" that Mr. Obama set out yesterday. And let's hope Judge Gonzalez ignores Michigan Representative John Dingell, who yesterday called the investors "vultures" and warned darkly that they "will now be dealt with accordingly in court." Someone should tell Mr. Dingell that the debt-holders aren't on trial in a bankruptcy proceeding.

It's especially rich for Mr. Obama to blast the creditors for seeking "an unjustified taxpayer-funded bailout" while offering the UAW a 55% majority stake in Chrysler. He also praised the large banks that hold most of the Chrysler debt and supported the government plan. But of course J.P. Morgan and the other big banks are also recipients of billions of dollars in taxpayer cash and have a strong interest in playing nice with their creditor, Uncle Sam Obama.

The Chrysler creditors at least represent teachers, pensioners and retirees, among others. The Administration is advancing its own social and political agenda through its ever-deeper entanglement with Chrysler and General Motors. That explains why the government is giving 55% of the new Chrysler to the UAW's retiree-benefit trust, a junior creditor, while those ahead of the trust in line get a mere 30 cents on the dollar.

A senior Treasury official described the decision to give majority ownership to the union's health-care trust as simple pragmatism -- that keeping the union happy is essential to the long-term health of the car maker. A skeptic might respond that this is precisely the kind of political-business calculation that helped to drive Detroit's auto makers into this ditch.

Meanwhile, over at Detroit's other ward of the state, General Motors, the Treasury was dismissive of a counter-offer that GM's private creditors made Thursday. Earlier this week, the Administration (via GM) made an offer to give those creditors about five cents on the dollar while taking 50% of the equity for the government. And it justified that offer by saying taxpayers needed to be protected for the $16.2 billion Treasury has already lent to GM.

So GM's creditors offered to take 50% ownership themselves in exchange for canceling their $27 billion in debt. The UAW would still get about 40% of GM, but the new private owners would control the firm. And the Treasury's own loans would be kept whole, helping to ensure that taxpayers get all their money back.

"The company can't sustain all that debt," a senior Treasury official told us, explaining why the government's share of the debt load needs to be reduced. That could well be true, but if the Treasury knew that $16.2 billion was too much debt for GM to carry, it had no business lending the company that much in the first place.

The GM drama will play out in the coming weeks before an end-of-May deadline, and it may also end up in bankruptcy court if Treasury doesn't make a better offer to creditors. That would be painful, but an independent judiciary is also the place where the rule of law and sound financial judgment can best prevail. That will ultimately serve taxpayers best as well.

[Hansmeister]

Ad another WSJ:

A Chrysler Bankruptcy Won't Be Quick
It will be difficult for a judge to sort through the many conflicting claims..Articlemore in Opinion ».EmailPrinter
By MARK J. ROE
Yesterday, Chrysler filed for Chapter 11 bankruptcy protection in preparation for a partnership with Italy's Fiat. President Barack Obama says he hopes the bankruptcy proceeding will be quick and efficient, and that the Fiat deal "will give Chrysler a chance not only to survive, but to thrive in a global auto industry."

I hope so too. But a Chrysler bankruptcy has many moving parts -- and with Chrysler unable to make money selling cars, it just doesn't have enough nongovernment cash to grease those moving parts to facilitate a smooth bankruptcy. Chrysler is in worse shape than GM. And remember, Fiat has yet to offer a penny for its 20% share in Chrysler. Thus far, it's only offering access to its fuel-efficient technology.

This could get messy. First off, in a bankruptcy any single creditor is entitled to get the liquidation value of its claim. So any creditor can assert that what it would get if Chrysler sold its factories quickly would be more than the 32 cents per dollar that Treasury had guaranteed Chrysler's secured creditors before the government deal fell apart this week.

Valuation proceedings are notoriously difficult in Chapter 11. Although the judge doesn't actually need to liquidate Chrysler, the judge must determine what it would have gone for if there were a liquidation. Some creditors appeared ready to bring that case to the bankruptcy judge.

On top of liquidation value, the whole class of secured creditors is entitled to the "fair value" of their claims. Usually fair value -- the money that can be obtained from operations -- is greater than liquidation value, though Chrysler may be an exception.

The government thinks the fair value issue will be resolved easily. That's because in a bankruptcy proceeding the creditors whose claims amount to two-thirds of the total amount of debt can bind the rest to take the deal. Indeed, the judge doesn't have to figure out whether value is fair, if the class of creditors votes in favor. And since two-thirds have already raised their hands in favor of 32 cents on the dollar, it seems to be a done deal.

But this time it might not be so easy. Not all of those who've already raised their hands in favor prior to bankruptcy, especially the smaller investors, will still be raising their hands inside Chapter 11. They can change their mind, and some just didn't want any negative publicity before the bankruptcy.

Worse, there could be a legal fight over whether the vote of Citibank and the other "big four" creditors -- J.P. Morgan Chase, Morgan Stanley and Goldman Sachs, who together hold 70% of Chrysler's debt -- should be counted toward the two-thirds threshold that would bind the company's other 42 creditors. The Bankruptcy Code requires that the votes of creditors be given in "good faith." It won't be hard for the smaller creditors to argue that Citibank and other TARP recipient's votes aren't in full good faith. In agreeing to Treasury's offer of 32 cents for each $1 of their debt, the objectors would say, Citibank and some others were influenced by the fact that Treasury was keeping them afloat with federal subsidies. If this type of litigation begins, it won't be easily resolved.

Meanwhile, Fiat will want to rationalize Chrysler's bloated dealership network. Indeed, this once seemed a core aspect of any effort to reconstruct Chrysler, so the last day's focus on a few secured creditors seems misplaced. But terminated dealers won't go quietly. They'll argue that their contracts can't be easily rejected by a bankruptcy judge because they're protected by state franchise laws. And in any event, they are entitled to some form of payment (reduced or otherwise) from a bankrupt Chrysler if their dealerships are terminated.

If the bankruptcy court could sell Chrysler's core operations intact, many of these bankruptcy frictions could be left behind. That would be the best operational outcome, but it's not clear that there's any real buyer -- Fiat is prepared to take a major stock position in a reorganized Chrysler, but it doesn't seem ready to pay any cash for it. Sales of divisions of a bankrupt firm are common in bankruptcy and often the best solution. But these kinds of sales typically are done via an auction, where other players can outbid Fiat. If Fiat isn't paying anything, then it may be easy to outbid. The question then would become whether the judge would be willing this time to forego a real auction.

If Chrysler could make cars that more people wanted to buy, bankruptcy would be much easier -- and probably not necessary. But that's not the case, so figuring out who will bear what amount of the losses will take place in a bankruptcy court, where too many players have leverage under the law, and where the reality of Chrysler's weak operational prospects makes a fast and easy resolution unlikely if the company can't be quickly sold.

Mr. Roe is a professor at Harvard Law School, where he teaches bankruptcy and corporate governance.

[DontSayBanana]

Congratulations, Hans- you've made my point for me.

Valuation proceedings are notoriously difficult in Chapter 11. Although the judge doesn't actually need to liquidate Chrysler, the judge must determine what it would have gone for if there were a liquidation. Some creditors appeared ready to bring that case to the bankruptcy judge.

On top of liquidation value, the whole class of secured creditors is entitled to the "fair value" of their claims. Usually fair value -- the money that can be obtained from operations -- is greater than liquidation value, though Chrysler may be an exception.

They should have taken their chances on the government offer. Their entitlement to "fair value" is based on the company being solvent. If it is determined that the company is insolvent, they pretty much get squat.

Another thing you've apparently skipped over while looking for Obama's name and info to blast him about is that the repayment value is done by vote. Two thirds have gone on record as accepting the government's offer of 32 cents on the dollar.

Your own article is also projecting that those same bondholders are probably going to try to sabotage the bankruptcy proceedings by claiming the others' votes are not being made in "good faith."

[alfred russel]

The government is in a tough spot in negotiating with the bondholders of GM and Chrysler. The liquidation value for the bondholders may be minimal, and in ordinary circumstances that would be what the bondholders would be left with as they likely wouldn't be able to get debtor in possession financing.

But in this case, the government is promising to reconstitute the companies as viable and profitable going forward. Since they have an equity claim in bankruptcy, many of the bondholders probably want to hold out for a significant equity stake (or at least be compensated as they would if they got a significant equity stake in a viable business).

[Savonarola]

Day 1 of Bankruptcy:

Day 1 for new Chrysler is anything but ordinary
Alisa Priddle / The Detroit News
The Obama administration says the bankruptcy of Chrysler LLC should not affect "ordinary" operations of Detroit's No. 3 automaker.

But Day One of Chrysler's Chapter 11 era was anything but ordinary -- two top Chrysler executives said they will leave, nervous suppliers refused to ship parts and Chrysler said it will shutter most plants during bankruptcy and disclosed plans to close six U.S. factories as part of its restructuring, including three in Metro Detroit by 2010.

"Once you pull the bankruptcy trigger, there's no such thing as business as usual," said Aaron Bragman, a Troy-based auto analyst with IHS Global Insight.


Chrysler's plan to emerge includes new management, a new board, an Italian partner, a revamped product lineup, less plant capacity, fewer workers and dealers and, potentially, a new name.

An agreement has been signed with Fiat SpA to establish an alliance. The "NewCo" as Fiat and others are calling it, would emerge from bankruptcy in 30 to 60 days shorn of burdensome debt agreements and underperforming dealers, plants and models. A full review of assets has been done and the work must begin Monday, said Chrysler Vice Chairman Tom LaSorda.

"Can they pull it off in 60 days?" Bragman said. "Most experts say no. Six months is more likely."

Already there are casualties.

Chairman Robert Nardelli said he will leave once the restructuring is complete and return to Cerberus Capital Management LP as an adviser. Nardelli said the U.S. Treasury did not ask him to step down. Last month, the government asked Rick Wagoner, former chairman and CEO of General Motors Corp., to leave.

LaSorda, who started the product partnership talks with Fiat a year ago, planned to announce his retirement today, and said he was unlikely to stay through the restructuring.Vice Chairman Jim Press will remain.

The new company will be run by a nine-person board with six independent members appointed by the government and three appointed by Fiat, including an employee. The board will elect a chairman and select a CEO "with the concurrence of Fiat," Nardelli said. The post could be held by Fiat CEO Sergio Marchionne.

Fiat will start with a 20 percent stake, in value and voting rights, in the new company, increasing it to 35 percent as it supplies global distribution and builds small vehicles and engines in the U.S.

The governments of the U.S. and Canada comprise a collective 10 percent stake and an independent health fund trust to be run by the United Auto Workers will hold a 55 percent stake but without equivalent voting rights.

Chrysler is filing "First Day" motions with the court so it can pay workers, suppliers, dealers, and provide incentives to buyers. It expects approvals quickly.

Pension plans will not be terminated and newly negotiated union contracts remain intact.

Chrysler said all plants in the U.S. and Canada will be idled effective Monday. But some nervous major suppliers jumped the gun Thursday and refused to deliver parts without payment.LaSorda said if emergence from bankruptcy takes over 60 days, plants can be returned to duty as needed. More permanent capacity reductions are planned, LaSorda said, and hourly employee buyout offers have been extended to May 25.

According to court documents, the six plants to be closed include Sterling Heights Assembly Plant, Detroit Axle and the Connor Avenue plant, also in Detroit. Sterling Heights and Detroit Axle are to be leased back to Chrysler until they close by December 2010, according to court documents.

The three other operating plants to close are St. Louis North, Kenosha Engine in Indiana and Twinsburg Stamping in Ohio.

The financial documents disclose that Chrysler plans to cut its marketing budget by 50 percent.

[DontSayBanana]

The government is in a tough spot in negotiating with the bondholders of GM and Chrysler. The liquidation value for the bondholders may be minimal, and in ordinary circumstances that would be what the bondholders would be left with as they likely wouldn't be able to get debtor in possession financing.

But in this case, the government is promising to reconstitute the companies as viable and profitable going forward. Since they have an equity claim in bankruptcy, many of the bondholders probably want to hold out for a significant equity stake.

Which would be how likely, really? This was even bolded in the SEC article itself:

Q: What will happen to my stock or bond?

A: ....In most instances, the company's plan of reorganization will cancel the existing equity shares....