By on May 7, 2009

The day after they were “outed” by a federal bankruptcy judge’s fiat, Chrysler’s holdout debt holders have thrown in the proverbial towel. And whom do the non-TARPies blame for their recalcitrance and capitulation. Lawyers White & Case said their clients withdrew for “various reasons . . . as a consequence of concerns stemming from publicity of these Chapter 11 cases.” In other words, they were intimidated! This despite the fact that they were unable to prove their claim that they’d been subject to death threats for their reluctance to take the government’s debt-for-equity swap—other than a few comments posted on a website (go internet!). And while they were at it, the non-TARPies’ brief cleared-up the question plaguing financially savvy conspiracy theorists everywhere. The law firm said none of their clients hold credit default swaps, which would have paid off their entire holdings if the judge had ordered a Chrysler liquidation. (Doh!) The White House said “whew!” “While there is still a lot of work to do, this development gives us further confidence that Chrysler’s bankruptcy will be quick and orderly,” White House spokesman, Robert Gibbs, elucidated.

Get the latest TTAC e-Newsletter!

37 Comments on “Chrysler non-TARPies Surrender, Clear Way for Fiatsler...”


  • avatar
    menno

    This guy says it all.

    http://www.theinternationalforecaster.com/printerfriendly/International_Forecaster_Weekly/The_Big_Failures_Cascade_Through_The_World_Economy

  • avatar
    bluecon

    This is good news for communist China.

    Better to invest there than the USA.

  • avatar
    McDoughnut

    You know thats right!

    On that note I’d like to welcome our new Chinese Economic Overlords!

  • avatar
    buzzliteyear

    Regardless of the actual merits (?) of the Fiat-Chrysler mashup, I find the moral indignation over the issue fascinating.

    The B&B (?) are getting all worked up about the ‘rights’ of hedge funds who buy corporate bonds at a huge discounts (using the euphemism ‘distressed securities) in the hope that either A) the company will restructure and make good on the bonds or B) the bankruptcy settlement share will be worth their investment.

    Translation: THEY ARE GAMBLERS!

    And in the case of Chrysler, they gambled and they ‘lost’.

    C’mon, people! What’s next? Are you going to get huffy on behalf of roulette players when the wheel fails to come up 22-Black?

  • avatar
    menno

    buzz, it’s not that they ‘gambled’. It’s that THE RULES WERE CHANGED TO BENEFIT OTHERS AT THEIR EXPENSE.

    Investors – that includes you and I – will only invest in something in an orderly and lawful place, right?

    I mean, would you care to invest in Somalian Pirate “shares”?

    The law of unintended consequences is this:

    Any intelligent investors will run – not walk – away from investing one red f*cking penny in the United States.

    Watch what happens next (given that the U.S. is now the biggest debtor nation on planet earth).

    I’ll give you a hint: “printing press money.”

    Look up “Weimar Republic Hyperinflation” and “Zimbabwe Hyperinflation”.

    There’s our future.

  • avatar
    guyincognito

    Props to PCH101 for calling this one right.

  • avatar
    John Horner

    “In other words, they were intimidated!”

    Well, that is one way to look at it. Another way is to say that they took a gamble, lost the gamble, and now wish to lay blame elsewhere for their failure. These are not investors, they are speculators. People constantly confuse the two.

  • avatar
    indi500fan

    @menno:
    I believe you’re spot on.
    Right now those with good credit you can borrow for 30 yrs at incredible low rates.
    I recommend it for everyone.
    Pay it back with minibucks.

  • avatar
    toxicroach

    Well, intimidated is probably a strong word.

    Cost of bad publicity plus the low chance of winning is really what it was.

    Ah well. In the future I will have more sympathy for TV pundits constantly being wrong. I bought into the bluff; I figured that if they fought this far they meant to stay in it till the end.

  • avatar

    NB: I was being sarcastic about the intimidation thing.

  • avatar
    buzzliteyear

    menno wrote:

    Investors – that includes you and I – will only invest in something in an orderly and lawful place, right?

    And where is this Golden Land of Puppies, Unicorns, Calorie-Free Ice Cream, and risk-free investing?

    The United States?

    Excuse Me? Enron, Tyco, Global Crossing, Adelphia, WebVan, the 1980s leverage buyout/insider trading scandals, the S&L crisis, Bernie Madoff, Continental Illinois Bank, Long-Term Capital Management, etc., etc., etc.

    As for the “they changed the rules” argument, that is one of the risks (loosely called “political risk”) that every investor takes.

    If the hedge funds didn’t want to risk this money, they should have put it in insured bank accounts, or bought Microsoft stock.

    Their ‘investment’ is more accurately modeled as buying a stake in a poker game (“I’ll call your Fiat merger and raise you a bankruptcy motion…”).

  • avatar
    geeber

    buzzliteyear: As for the “they changed the rules” argument, that is one of the risks (loosely called “political risk”) that every investor takes.

    There is a considerable difference between the normal risks that are inherent in a market economy and the rules being changed during the game.

    buzzliteyear: If the hedge funds didn’t want to risk this money, they should have put it in insured bank accounts, or bought Microsoft stock.

    The “political risk” can be changed for those investments, too.

  • avatar
    motron

    @toxicroach

    “Ah well. In the future I will have more sympathy for TV pundits constantly being wrong.”

    I am firmly in the pro-Government camp on this issue, but I really appreciated all of your contributions. As much as I opposed your viewpoint, I understood it as being well-informed and serious. I hoped you were wrong, but was very afraid you weren’t. Regardless of the outcome, I valued your input.

  • avatar
    George B

    As for the “they changed the rules” argument, that is one of the risks (loosely called “political risk”) that every investor takes.

    No, the issue isn’t that the rules were changed in the political process. The issue is that the rules were changed without going through the slow and somewhat transparent process of passing a law in congress. Unexpected arbitrary rule changes in the courts or by the executive branch tend to make investors nervous.

  • avatar
    kowsnofskia

    The Obama administration’s corruption saga continues. Which long-standing business law will they destroy tomorrow in the name of “saving the country”?

  • avatar
    Mr. Sparky

    The non-Tarpies are not the wide-eyed little moppet investors that some seem to think they are.

    They are very skilled professional investors who knew going in that the government would very likely get involved if things went bad. Government involvement offered an additional investment risk that could either payoff for them (company saved on tax payer dime with all creditors smiling happily) or not (C11 and throw the instutional investors under the bus).

    Unfortunately, their investments didn’t work out. Neither did my SEP-IRA last year.

  • avatar
    Pch101

    There is a considerable difference between the normal risks that are inherent in a market economy and the rules being changed during the game.

    The rules weren’t changed. The bondholders had no leverage, because their argument that their interests were being compromised by an 11 were outweighed by the real world lack of asset value.

    In my opinion, the critical factor wasn’t identifying them but with the sale decision made by the judge. That put a period on the end of the sentence, placing the burden on the bondholders to eventually support their value argument, something that they would not be able to do.

    The government arguably got an unfair push of the calendar, but that is unlikely to have harmed the intrinsic value of the assets. In these sorts of proceedings, it is usually in the best interests of one party to stall, and in this case, that was the bondholders.

  • avatar
    thalter

    There is a lot of tinfoil hat, conspiracy theory crap in menno’s link, but the two paragraphs quoted below basically answer buzz’s question:

    The government’s proposed plan inverts the classic priority scheme written into the bankruptcy code, when senior secured creditors are paid in full first, followed by junior lenders, administrative claims, unsecured lenders and equity holders in that order.

    There is no question the sale is an attempt to end-run the procedural protections that are provided by Chapter 11. The senior secured creditors are going to get $0.29 on the dollar and the unsecured creditors $10 billion. The secured lenders are subsidizing junior creditors who have little or no standing. No court has ever approved something like this before. It is without precedent. The senior holders have been deliberately precluded from negotiations with the government. This is the way corporatist fascism works. The pressure by the administration was intense. A president has never thrust himself into a bankruptcy case like this. This means the court is not independent and unbiased, but rather an instrument of the executive.

    The junior creditors in this case is the UAW.

    I have no love for the non-TARPie gamblers, but rules are rules. If investors can’t expect that investment rules are going to be followed, then they are going to quit investing.

  • avatar
    Pch101

    the unsecured creditors $10 billion

    Er, they’re not. They’re getting a note and a bunch of currently worthless stock. It’s a totally speculative play with a high risk of failure that the bondholders would have never taken themselves.

    The bondholders wanted cash. They won — they’re getting cash. If the UAW had a prayer of getting a penny of real money, they wouldn’t have taken the deal that they did.

  • avatar
    psarhjinian

    The issue is that the rules were changed without going through the slow and somewhat transparent process of passing a law in congress

    Did they? Really? When did that happen?

    I’m all for pillorying the executive branch for hastiness and quasi-legality, but they didn’t change the law. They twisted arms, but it’s not like the other parties didn’t have legal recourse if they wanted to push their own case.

    That they didn’t tells you that the reason they caved has everything to do with expected returns. Eg, they weren’t going to get any. They’d already benefitted as much as was reasonable, and their attempts to push their luck weren’t going to work.

    Again, though, that kind of thought gets in the way of a good rant about communism.

  • avatar
    motownr

    @Toxicroach and PCH101:

    Thank you for your contributions. Really, really, terrific stuff.

    Now to see how the rest of the plan pans out. My concern remains that the ibanker-heavy PTFOA’s plan is long on understanding pro formas and the courts, and clueless on the dynamics of the industry. Marrying up the UAW with what is now clearly the weakest management team of the Big 3 seems to be a recipe for disaster.

  • avatar
    buzzliteyear

    @Mr. Sparky – Spot on! You expressed simply and clearly the counterargument to the “Obama screwed the senior debt holders” complaint.

    For the vast majority of them, buying Chrysler bonds was the corporate finance equivalent of betting that a sports team will ‘beat the spread’.

    motownr wrote:

    @Toxicroach and PCH101:

    Thank you for your contributions. Really, really, terrific stuff.

    I second those kudos. Really top notch reporting and analysis.

    For those of you still shedding crocodile tears for the non-TARP bondholders, may I suggest you have a get-together on Christmas Eve at the Stanford Theater.

    http://www.stanfordtheatre.org/stf/

    They show “It’s A Wonderful Life”. You can cheer all the scenes where Henry Potter buys up everything in Bedford Falls during the economic panics.

  • avatar
    menno

    See above where I commented that

    “The law of unintended consequences is this:

    Any intelligent investors will run – not walk – away from investing one red f*cking penny in the United States.”

    Well, okay, have a lookie here, friends.

    http://patriotroom.com/article/obama-the-beggar–gulf-emirs-say-no

  • avatar
    motron

    @menno

    You may want to read (and think about) that article more carefully. First, the information is sourced to Debka.com, a site whose accuracy (or lack thereof) you may wish to consider. Second, assuming Debka is correct (not a good assumption), the reason for the Gulf countries refusing to invest in the US is because of Obama’s policy toward Iran. There is nothing about investors being afraid to invest because of the Chrysler situation. The article does nothing to support your point.

  • avatar
    windswords

    Pch101:

    “There is a considerable difference between the normal risks that are inherent in a market economy and the rules being changed during the game.

    The rules weren’t changed. The bondholders had no leverage, because their argument that their interests were being compromised by an 11 were outweighed by the real world lack of asset value.

    In my opinion, the critical factor wasn’t identifying them but with the sale decision made by the judge. That put a period on the end of the sentence, placing the burden on the bondholders to eventually support their value argument, something that they would not be able to do.”

    I agree with Pch101 on this and I called it. Just a few days ago I told everyone here that the bondholders were delusional and some of the B&B were wrong in thinking that Chrylser’s assets were worth anything because of the current auto economy. If this was 2005 and we were going thru the same thing then yes, you could sell some of those assests and cover your losses. But now? No way Jose. The judge knew this too. Why destroy the company while NOT being able to pay any significant money to the bondholders? FIAT/Chrysler may yet go down in flames but at least there is a chance that it will work and those same bondholders will get 2 billion, which is a lot better than zero.

  • avatar
    geeber

    Pch101: If the UAW had a prayer of getting a penny of real money, they wouldn’t have taken the deal that they did.

    They may have something better…a President who is committing to proving that this can work. And I’ll bet that he will continue to “make it work” with continued injections of taxpayer money, if needed. Politicians – whatever their ideology or party affiliation – have an extremely tough time admitting failure. So we may be on the hook for more injections of cash to keep the company going for that elusive recovery that will always be “just around the corner.”

    Detroit may end up being the Obama Administration’s Iraq War…

  • avatar
    menno

    motron, my point was broader. I’m saying that smart money is staying away from investing in the US and this is going to accelerate, no matter what the “given reasons” for refusing to pour money down this rat-hole of deficits currently known as the Untied Status of Amerika. I Mean, United States of America.

    Didn’t you see the (essentially unreported) news about how China is essentially cutting up the U.S. government’s credit card and dramatically slowing if not stopping the lending of money to this country? If I am not mistaken, the man who said it was a long-term United States Senator of some reputation.

    Not a surprise, really….

    Give it about 6 to 18 months and I suspect you’ll be thinking “wow, menno wasn’t ningwutz after all… unfortunately” as the economy crashes & burns around us/hyperinflation takes hold.

    As for the “trustworthiness” of any given reporting any more, so ….. you actually trust the main stream media for your “news”?……

    Um, okay then….

    If they were to slobber any more over Obama, for the most part, I’d be worried about them all getting dehydrated…. just for starters.

    It’s getting to be embarrassing to see….. sheesh. For starters, they all need to get up off their knees and wipe off their chins…

  • avatar

    These are not investors, they are speculators.

    Explain the difference. Every investor is a speculator.

  • avatar

    First, the information is sourced to Debka.com, a site whose accuracy (or lack thereof) you may wish to consider.

    Actually, they’ve accurately broken some stories. I wouldn’t bank money based on a Debka story, but I wouldn’t be completely skeptical.

    FWIW, I’m listening to Michael Barone, hardly an extremist and pretty representative of the moderate center, on Dennis Prager’s show. Barone is calling the PTFOA’s actions in regard to Chrysler’s restructuring “gangster government”, transferring property from a politically disfavored group (“speculators” i.e. secured bondholders) to a politically favored group (the UAW).

    As for Farago’s comment about the credibility of internet reports of gov’t intimidation, I don’t find an unnamed source on Clusterstock or other financial blogs to be any less credible than when the New York Times quotes an unnamed source.

  • avatar

    I wonder what the folks who think nothing’s wrong with the Obama administration’s attack on capital will say when it’s their own business or property that is being transferred to someone else.

  • avatar

    There is nothing about investors being afraid to invest because of the Chrysler situation.

    Have you read any of the financial blogs? Here’s a public letter published the other day by a hedge fund manager (who voted for Obama, btw):

    Clifford S. Asness
    Managing and Founding Principal
    AQR Capital Management, LLC

    The President has just harshly castigated hedge fund managers for being unwilling to take his administration’s bid for their Chrysler bonds. He called them “speculators” who were “refusing to sacrifice like everyone else” and who wanted “to hold out for the prospect of an unjustified taxpayer-funded bailout.”

    The responses of hedge fund managers have been, appropriately, outrage, but generally have been anonymous for fear of going on the record against a powerful President (an exception, though still in the form of a “group letter”, was the superb note from “The Committee of Chrysler Non-TARP Lenders” some of the points of which I echo here, and a relatively few firms, like Oppenheimer, that have publicly defended themselves). Furthermore, one by one the managers and banks are said to be caving to the President’s wishes out of justifiable fear.

    I run an approximately twenty billion dollar money management firm that offers hedge funds as well as public mutual funds and unhedged traditional investments. My company is not involved in the Chrysler situation, but I am still aghast at the President’s comments (of course these are my own views not those of my company). Furthermore, for some reason I was not born with the common sense to keep it to myself, though my title should more accurately be called “Not Afraid Enough” as I am indeed fearful writing this… It’s really a bad idea to speak out. Angering the President is a mistake and, my views will annoy half my clients. I hope my clients will understand that I’m entitled to my voice and to speak it loudly, just as they are in this great country. I hope they will also like that I do not think I have the right to intentionally “sacrifice” their money without their permission.

    Here’s a shock. When hedge funds, pension funds, mutual funds, and individuals, including very sweet grandmothers, lend their money they expect to get it back. However, they know, or should know, they take the risk of not being paid back. But if such a bad event happens it usually does not result in a complete loss. A firm in bankruptcy still has assets. It’s not always a pretty process. Bankruptcy court is about figuring out how to most fairly divvy up the remaining assets based on who is owed what and whose contracts come first. The process already has built-in partial protections for employees and pensions, and can set lenders’ contracts aside in order to help the company survive, all of which are the rules of the game lenders know before they lend. But, without this recovery process nobody would lend to risky borrowers. Essentially, lenders accept less than shareholders (means bonds return less than stocks) in good times only because they get more than shareholders in bad times.

    The above is how it works in America, or how it’s supposed to work. The President and his team sought to avoid having Chrysler go through this process, proposing their own plan for re-organizing the company and partially paying off Chrysler’s creditors. Some bond holders thought this plan unfair. Specifically, they thought it unfairly favored the United Auto Workers, and unfairly paid bondholders less than they would get in bankruptcy court. So, they said no to the plan and decided, as is their right, to take their chances in the bankruptcy process. But, as his quotes above show, the President thought they were being unpatriotic or worse.

    Let’s be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients’ money to share in the “sacrifice”, they are stealing. Clients of hedge funds include, among others, pension funds of all kinds of workers, unionized and not. The managers have a fiduciary obligation to look after their clients’ money as best they can, not to support the President, nor to oppose him, nor otherwise advance their personal political views. That’s how the system works. If you hired an investment professional and he could preserve more of your money in a financial disaster, but instead he decided to spend it on the UAW so you could “share in the sacrifice”, you would not be happy.

    Let’s quickly review a few side issues.

    The President’s attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to “sacrifice” some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.

    Let’s also mention only in passing the irony of this same President begging hedge funds to borrow more to purchase other troubled securities. That he expects them to do so when he has already shown what happens if they ask for their money to be repaid fairly would be amusing if not so dangerous. That hedge funds might not participate in these programs because of fear of getting sucked into some toxic demagoguery that ends in arbitrary punishment for trying to work with the Treasury is distressing. Some useful programs, like those designed to help finance consumer loans, won’t work because of this irresponsible hectoring.

    Last but not least, the President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The TARP recipients had no choice but to go along. The hedge funds were singled out only because
    they are unpopular, not because they behaved any differently from any other ethical manager of other people’s money. The President’s comments here are backwards and libelous. Yet, somehow I don’t think the hedge funds will be following ACORN’s lead and trucking in a bunch of paid professional protestors soon. Hedge funds really need a community organizer.

    This is America. We have a free enterprise system that has worked spectacularly for us for two hundred plus years. When it fails it fixes itself. Most importantly, it is not an owned lackey of the oval office to be scolded for disobedience by the President.

    I am ready for my “personalized” tax rate now.

  • avatar
    buzzliteyear

    @Ronnie Schreiber.

    At some point, a difference in degree becomes a difference in kind.

    If you are buying 100 shares of Microsoft, generally you are ‘speculating’ that the company will continue to make profitable products and eventually return some of that money to you.

    If you are buying Chrysler bonds near ‘par’ value, you are making a similar ‘speculation’.

    If you buy a Stock Market Index Future, you are not ‘investing’ in anything. You are simply betting against someone that the stock market will take a particular direction.

    Similarly, if you buy ‘distressed’ Chrysler bonds at 10% of par value, you are ‘investing’ in the possibility that some outcome (restructure, BK, government bailout, etc.) will exceed the purchase price.

    As one moves further towards the ‘speculation’ end of the investment spectrum, one expects higher returns from successful investments (winning a hand of blackjack doubles your money!), but one should also not be surprised by greater and more frequent losses.

    As for the Clifford Asness (great name!) letter, he is deliberately conflating the ends of the spectrum.

    Little Old Millie bought her Chrysler bonds when the company was a going concern and Chrysler was paying back the interest.

    She has already lost her money because she sold out to the ‘troubled assets’ hedge funds when the market value of those bonds declined 90%.

    So the non-TARP creditors probably picked up ‘$290 million’ in liabilities for about $30 million.

    Excuse me for not feeling sorry for them if they’re only getting $120 million out of the deal instead of $200 million.

  • avatar

    Detroit may end up being the Obama Administration’s Iraq War

    From your lips to God’s ear. The war is over, we won, thanks to Gen. Petraeus, our fighting men and women and the Iraqis who stood with them (and, of course, our allies in the UK and Australia).

  • avatar

    Any of you hear Howard Dean (you know, the guy that recently ran the Democratic party) and is one of Obama’s close advisers (according to Dean).

    “I think we had quite enough capitalism in the last 8 years”

  • avatar
    Robert Schwartz

    IT SHINES AND IT STINKS

  • avatar
    Pch101

    I’m listening to Michael Barone, hardly an extremist and pretty representative of the moderate center…

    Er, Barone is as much a centrist as is Noam Chomsky. This is the same guy who described Obama’s government as a “Thugocracy” and who blathers on about the “liberal media”, while doing his gig on Fox. You have to be pretty extreme yourself if you think that a guy who tilts that far right is in the middle. It’s OK if you like him, but at least be honest about what he is, and moderate it ain’t.

    They may have something better…a President who is committing to proving that this can work.

    Here’s the (sort of) secret about the VEBA — it was doomed to fail from the start. The union leadership sold it to their people because they couldn’t admit that their future benefits were in question, and probably screwed. The Old GM and Chrysler weren’t going to fund it, and the New ones probably won’t, either.

    The UAW heads, management and now implicitly the US government have all lied to these people. The leadership apparently lacked the courage to go back to their members and tell them that they had failed them. At this point, they’re stalling. Stalling has become a common theme with anything involving this company.

  • avatar
    NickR

    On a less political note…whatever that rusting hulk is it must have rocked appearance-wise when new.


Back to TopLeave a Reply

You must be logged in to post a comment.

Subscribe without commenting

Recent Comments

New Car Research

Get a Free Dealer Quote

Staff

  • Authors

  • Brendan McAleer, Canada
  • Marcelo De Vasconcellos, Brazil
  • Matthias Gasnier, Australia
  • Tycho de Feyter, China
  • W. Christian 'Mental' Ward, Abu Dhabi
  • Mark Stevenson, Canada
  • Faisal Ali Khan, India