It being effectively impossible to make viable the starving infant presently sucking at government teat given the existing rules and law of the land, bending, nay, breaking them has become a matter of patriotic necessity. Hence:
The U.S. government's restructuring plan for Chrysler LLC is sounding alarm bells for those in the business of lending money who worry that the plan could subvert decades of standing legal precedent and investing principles.Banks, hedge funds and other investors that hold $6.9 billion in secured loans are being asked to release their contractual claims over Chrysler's assets in exchange for a fraction of what they are owed. Many lenders see that as a raw deal, because in the bankruptcy code's priority scheme, secured creditors are supposed to get paid before unsecured creditors such as employees.
Raw deal or not, this Administration gets what it wants, unless the screaming becomes too loud to tolerate. And what screaming can the haves issue that the have-nots will hear?
U.S. Tactics Spark Worries Over Lenders' Rights [The Wall Street Journal]
Posted by Anal_yst , May 01, 2009 9:42AM
What's there to do, though? Stop lending? Ha, yes, that'd go over well.
You said it best, there's no song the "haves" can sing the "have nots" care to hear
Posted by guest , May 01, 2009 9:44AM
Can't we just worry about all this on Monday?
Posted by sugardaddy , May 01, 2009 9:47AM
Yes this will be a case of interest rates for individuals skyrocketing to compensate for lack of viable law. The people will complain and the admin and congress will then blame the banks even further.
Posted by guest , May 01, 2009 9:47AM
EP keep a lid on it or you are next
Toodles,
Barry O
Posted by guest , May 01, 2009 9:51AM
I'm normally amused by the ranting about Obama's policies but this Chrysler secured lending fiasco is truly worrisome.
If Obama thinks secured lenders should take a 70% loss in favor of unsecured lenders, where will this stop?
His willingness to personally vilify these funds is starting to ring like the "populist" fervor of Chavez or Putin.
Posted by guest , May 01, 2009 9:53AM
Rule of Law.. we don't need no stinking rule of law
Posted by guest , May 01, 2009 9:53AM
EP-- tattling is not acceptable in this administration. Time out, 5 minutes. Go sit in the corner with Ken Lewis.
Posted by guest , May 01, 2009 9:53AM
Chillax, dudes. This is exactly the type of situation the separation of powers was designed to handle. Obama & Co. can jump up and down waving its pitchfork at uncooperative hedge funds, and selfsame hedge funds can wrap themselves in the multicolored flag of Contract Sanctity, Fiduciary Duty, and the American Way, and it won't make a damn bit of difference. They had their chance to negotiate a deal, and they failed.
Now that Chrysler is in bankruptcy court, a cold-eyed judge will decide based on facts, arguments, and legal precedent.
Truth, Justice, and American Pie will prevail, and capitalists and socialists alike will link hands and skip off singing down the Yellow Brick Road. Hip-hip-hooray!
TED
Posted by guest , May 01, 2009 9:56AM
Any confusion left over who Barry's hero is? Hint: KM
Posted by guest , May 01, 2009 9:56AM
Good luck to all those companies with union employees trying to find unsecured credit.
Posted by guest , May 01, 2009 9:58AM
@2 FTW
Posted by guest , May 01, 2009 9:58AM
Poor Perella Weinberg
Posted by guest , May 01, 2009 10:00AM
"Change we can believe in!"
Michelle Obama, pre-sexual reorientation surgery.
Posted by merkin capital partners , May 01, 2009 10:04AM
François Mitterrand, line 1.
Posted by guest , May 01, 2009 10:04AM
@8 OR we could settle it in the Octagon
Posted by SgtJack , May 01, 2009 10:07AM
@10
You are the one giving it to them. Congratulations, you are a part owner of Chrysler. Here is some complementary Jager.
Posted by guest , May 01, 2009 10:08AM
Unbelievable, the United States is turning into Venezuela. Isn't the legal system supposed to protect POTUS from issuing Soviet-style directives. Anyone?
Posted by guest , May 01, 2009 10:09AM
Chrysler 1 The Germans 0
Chrysler 1 Cerberus 0
Chrysler 1 USA Taxpayers 0
Chrysler 1 The Italians 0
Chrysler 1 The World 0
Posted by guest , May 01, 2009 10:10AM
The law is the law. And while the law can be changed, El Prezidente cannot ignore it at his whim. If he could, it would be a dictatorship and not a democracy.
Posted by guest , May 01, 2009 10:11AM
I drive a Maserati.
Posted by guest , May 01, 2009 10:12AM
@8 - agree with your Separation of Powers argument and in all likelihood the court will side with the creditors - modulo this little issue with Obama strong-arming 70% of them into agreeing to bow to the union and the Treasury.
What's disturbing is that Obama stood at the teleprompter and attacked these hedge funds, making it look like all would have gone well but for these greedy bastards.
Maybe that amounts to nothing but a little populist rhetoric. Or maybe it means he's found a group to blame for all of the problems the economy and society faces.
Hm...has anyone else done that lately? Well, maybe Hugo. Will Obama tell us that the shadow banking system is not lending enough and we need to nationalize it?
When banks refuse to provide "secured loans" to companies teetering on bankruptcy will we nationalize them?
When do we seize the grocery stores for failing to sell rice?
Posted by guest , May 01, 2009 10:13AM
I guess the big O did not take that whole oath of office thing to serious.
"I do solemnly swear (or affirm) that I will faithfully execute the Office of President of the United States, and will to the best of my ability, preserve, protect and defend the Constitution of the United States."
Posted by guest , May 01, 2009 10:14AM
The rule of law is fine, just so long as they don't start applying it to Goldman. Let's not lose our bearings here.
Posted by guest , May 01, 2009 10:15AM
Yep, the judge will have final say. He will be well aware that the VAST majority of debtholders are vulture investors who bought the paper for pennies on the dolllar, and are wrapping themselves in bullshit arguments about "the system" in order to realize 100% notional value of the debt on the back of the taxpayers. Not gonna fly. Let them present their purchase confirms and we'll make them whole. But give the a six or eight-bagger, not a chance. That's not the free market, they bought that crap with eyes wide open, and its not Treasury's job to offer them a teat, much less the whole udder.
Posted by guest , May 01, 2009 10:18AM
@24 - I don't have any direct knowledge about what the debtholders paid, but Bloomberg suggests they paid about 50-75c on the dollar and are sitting on sizable losses. Do you know otherwise?
"Many dissidents paid from 50 cents to 70 cents on the dollar for their Chrysler loans, so they're sitting on losses, according to people familiar with the matter."
And beyond that, they are not asking to be made whole or for a handout from the Treasury - they seem to be asking for the value of the underlying collateral. Seems pretty fair to me.
Posted by guest , May 01, 2009 10:19AM
As a matter of law, Obama may well be able to get away with it.
If they have 2/3 in dollar amount and 50.1% in number to vote for their plan of reorg, then the dissenting lenders may be bound under 1129(a). The only other substantive requirement the debtors (i.e. the government) would have to meet is that they must provide all lenders with more than they would have had in a chapter 7 liquidation. If the judge agrees with the debtors' expert that the value in a chapter 7 is below what the debtors are offering in the plan, it's perfectly legal, and has been legal since the code was adopted in 1978. The entire point of bankruptcy is to bind minority stakeholders who would otherwise seek holdout rents.
This is a risk inherent in any syndicated loan. The hedgies are sophisticated investors who are undoubtedly advised by sophisticated bankruptcy counsel (or if they're not, deserve what they get). Now the gov't may be playing a little unfair since it in essence has enough leverage over the banks to get to 70% in dollar amount pretty easily, but the hedgies knew that when they bought in.
In other words, the hedgies made a bet that the gov't would cave (see, e.g. PIMCO in the GMAC debt exchange) and lost. Now either suck it up and cut a deal or go to war, put your expert up, and let the lawyers decide for you.
Posted by guest , May 01, 2009 10:19AM
I borrowed this one but it's poignant.
Message to our BK law...
http://www.youtube.com/watch?v=QPiK_yGG8ag&feature=related
Posted by guest , May 01, 2009 10:24AM
@24
do I really need to point out that you are out of your mind?
no one made the original note holders sell at a discount to "vulture" investors.
so if I sell a stock that has gone down to someone and it rebounds and they make money, should I get reimbursed? they must have known something I did not and took advantage of me!!!!
Posted by guest , May 01, 2009 10:26AM
@24 I think VAST majority is a little high...the majority of the debtors (top 50 of which were posted here in the official filing) are NOT vulture investors...though there a lot of them.
Posted by guest , May 01, 2009 10:26AM
26, but they have to get 50% of that level of seniority, which could be very difficult.
Posted by guest , May 01, 2009 10:27AM
I blame the OBAMALOBSTER.
Posted by guest , May 01, 2009 10:35AM
Actually, I was reading opinion by a Harvard Law Professor in WSJ.com today that even if the 2/3 of the creditors agree with the deal, it may not go through. Everything de[ends on the judge.
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.
http://online.wsj.com/article/SB124113528027275219.html
Posted by guest , May 01, 2009 10:48AM
Is Bess taking May 1 off?
Posted by guest , May 01, 2009 10:49AM
Yeah that's right. Times only start getting "dangerous" when secured lenders get hosed. Stupid twat.
Posted by guest , May 01, 2009 10:50AM
@31 -- Perhaps, perhaps.
Peter Griffin
Posted by guest , May 01, 2009 10:54AM
@26 You're right on point.
You shouldn't call yourself a distressed credit investor just because you're credit portfolio is now trading at distressed levels.
Hearing these guys cry just I can only draw one of two conclusions: 1) they are out of their league or 2) it's just a little positive PR to avoid playing the villain.
Posted by guest , May 01, 2009 11:00AM
#32,
interesting post.
why would Citi's vote not be in good faith just because Treasury's squeezing their balls?
in business, doesn't everyone vote the way the boss tells them to? isn't that why there's no secret ballot, so the boss can monitor that you're doing as ordered?
voting in good faith doesn't mean follow your conscience.
Posted by guest , May 01, 2009 11:01AM
Too Gay, or not too gay ...
That is the question.
Posted by guest , May 01, 2009 11:05AM
Was that Scott Wapner that just ding-ed Dingell? Did it go down something like this:
sw- why do you call hedge funds vultures
jd- that's what biz journals call them
sw- if that's why you call the hedge funds that, then what do you call the other parties involved, like the management and the unions....
ding.
Posted by guest , May 01, 2009 11:23AM
@10 - Or secured debt for that matter
Posted by guest , May 01, 2009 11:28AM
@24 Bush should have gotten debt subordination as a prereq before putting one dime into their coffers
Posted by guest , May 01, 2009 11:32AM
@24 Bush should have gotten existing debt subordination as a prereq before putting one dime into their coffers
Posted by guest , May 01, 2009 11:42AM
@24
what exactly has the UAW done, other than sink Chrysler under the weight of unsustainable costs, that merits them a spot in line ahead of the debtholders?
Posted by guest , May 01, 2009 11:43AM
@23: Best post so far!
Posted by guest , May 01, 2009 11:46AM
The debtholders put the company into Chapter 11. whatever the judge decides, it was there choice to give him the power to decide. Reap what you sow, AssClowns.
Posted by guest , May 01, 2009 12:22PM
@ 41/42,
They would not have gone for it, forcing the BK filing. Which would have been better for the creditors and taxpayers.
Posted by guest , May 01, 2009 12:24PM
@15, incredible movie reference.
Send Barry O. into the octagon. Our country will be rid of him and then be championed by President Norris.
It's win/win.
-BeckyKungFuFan
Posted by guest , May 01, 2009 12:32PM
@21, maybe Obama finished reading the book Chavez gave to him. That would explain some of the stupidity going on.
@24, it doesn't matter WHAT price the investors paid for the bonds. The bonds come with certain rights that don't terminate just because you've already made tons of money on it. We already went through this argument with U.S. issued bonds and Alexander Hamilton.
Posted by guest , May 01, 2009 1:08PM
@46/@24 said: "The debtholders put the company into Chapter 11."
Riiiight.
So I loan you $100, and when you squander it, I'm a sonofabitch for asking to be repaid.
Ok then!
Posted by guest , May 01, 2009 1:16PM
Won't bankruptcy court slap him down? Checks and balances.
Posted by chernevik , May 01, 2009 1:35PM
#24 / guest@10:15AM
As guest@12:32pm notes, your complaint about "speculators" goes back to the government's first days, when it considered compelling holders of Revolutionary War bonds to accept discounted payments.
Hamilton explained why this is a bad idea. Obviously, payment at par would allow the country to borrow on better terms in future emergencies. But he further noted that the debt of countries with good credit "answers most of the purposes of money" by serving as a medium of exchange. This expansion in money would in turn improve the cost and availability of credit. Perhaps one consequence of a shortage of money will sound familiar:
"The present depreciated state of [real estate] is a serious calamity. The value of cultivated lands, in most of the states, has fallen since the revolution from 25 to 50 per cent. In those farthest south, the decrease is still more considerable. Indeed, if the representations, continually received from that quarter, may be credited, lands there will command no price, which may not be deemed an almost total sacrifice.
"This decrease, in the value of lands, ought, in a great measure, to be attributed to the scarcity of money. Consequently whatever produces an augmentation of the monied capital of the country, must have a proportional effect in raising that value. "
This exact argument applies today. No, this isn't government debt, but debts like Chrysler's, and others with less security, were rolled into CDOs and sold to investors who funded their purchases with commercial paper. The growth of that process accelerated the movement of cash from savings to business investment, essentially creating money. The deceleration of that shadow banking system starved businesses and consumers of previously expected credit, dramatically slowing their purchases and thus our economy. CP lenders stopped lending, and so stopped the whole system, because they decided the debt in the CDOs was of poor quality, and so lost confidence in their borrowers' ability to repay.
The Treasury now proposes to speed the flow of money by lending to equity investors to purchase these CDOs. They'll be bought at a discount to par, so the investors will be "speculators" by definition. The price they pay will depend in part on their ability to predict what they'll get if a credit goes bad. The ability of the shadow banking system to eventually replace the government as a lender also depends on that same predictability.
I suppose we could let the President, or Congress, tell "speculators" to accept what is "fair" and how much that might be. The President's ideas of fairness seem politically convenient to me, but maybe that's just cynical. In any case, lenders won't be able to predict their recoveries under the Presidential fairness standard, and will be that much more reluctant to lend if they have to. Likewise investors in Treasury's "public private partnerships." All of the President's economic goals, and his chief proposal for realizing them, are set back by confusing the bankruptcy recovery process. If you or he think that's a price worth paying for your notions of fairness, you ought to at least say so out loud.
As a "comment" this is definitely "too long, didn't read". 98% of DB's readers already understand this. It was laid out centuries ago by a guy working with a quill pen and candles. But maybe if you see the details, you'll consider that maybe there is more at stake here than the "unfair" returns to wicked bankers.
Posted by chernevik , May 01, 2009 1:39PM
Did I just write all that? Wow. Sorry.
Posted by guest , May 01, 2009 1:41PM
@ 51
Too long, didn't read.
Posted by guest , May 01, 2009 2:21PM
I understand absolute priority claims and all that, but do these guys (subject HF) not realize the rules went out the fuckin' window along fuckin' time ago (circa BSC)?
Posted by guest , May 01, 2009 4:35PM
I absolutely love the argument citing a low cost-basis as a means for determining what they should be allowed to recover. And the fact that this mind numbing logic is so embraced by the masses is icing on the cake.
Posted by guest , May 01, 2009 4:51PM
55 Its not an argument for determining what should be recovered. Its simply pointing out that the bonds were bought at fire sale prices by people who felt that they were oversold (based on the likelihood of bankruptcy and expected terms of a subsequent recovery). And part of their recovery strategy is to whine and moan. Similar to stamping your feet when the umpire makes a bad call, in the hopes that he'll think twice next time.
Which is why if you read Dealbreaker today it appears that this is the beginning of the end of civilization. Yet the markets today are telling us otherwise.
Posted by guest , May 02, 2009 1:11AM
@26 - issue here is that we're not at the plan stage, but 363 sale. Big fight here is whether sale is a sub rosa plan.
Gonzalez should tell dissenters to put up or shut up, and maybe they come in and credit bid their portion of the senior secured debt and cover the balance in cash or other consideration to make it a higher or better offer than gov't. Dissenters could end up with the assets, wipe everyone else out, incentivizing other senior secureds to compete, etc.
Posted by guest , May 03, 2009 4:40AM
@56
The "markets" are not telling you otherwise. Visible manifestations most people attribute to the "markets" may be up. But the real markets that matter are still on the edge of disaster.