By on April 23, 2009

Unnamed sources tell the New York Times that the Treasury has agreed “in principle” to protect UAW pensions and retiree health care when Chrysler files for C11 “as soon as next week.” Protect with what? Fifty percent new Chrysler stock and 50 percent new Chrysler profits. Or, uh, more Treasury money. Fiat, say the sources, will “complete its alliance” with (i.e., pick the carcass of) Chrysler during bankruptcy. The only loose thread for the sources who “were not authorized to discuss the case,” is the bondholder brigade which recently turned down the Treasury’s haircut offer. Which leads one to believe that this revelation comes from someone negotiating opposite Chrysler’s bondholders (the Treasury) as a none-to-subtle bargaining gambit. Jump, or we file.

But if these bondholders have gutted out their hand this far, are they really going to settle for 22 cents on the dollar at the mere threat of a bankruptcy filing? Let alone a filing in which the government has pledged to absorb a major impact of (UAW legacy costs)? I imagine that Chrysler bondholders (never met one) might be the kind kinds of hardy souls that actually look forward to fighting the government over the company’s scraps. On the other hand . . .  If “once Chrysler emerges from bankruptcy protection, it would largely be owned by Fiat, the UAW, the Treasury and its lenders,” as the Times says, this high-stakes poker game doesn’t bode well for the post-Ch11 joint ownership.

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40 Comments on “Chrysler To Declare Bankruptcy Next Week?...”


  • avatar

    Hold up, not so fast.

    Meanwhile, it seems like Pontiac’s death warrant will be signed on Monday. Or so I hear.

  • avatar
    superbadd75

    Does this mean that Obama’s going to blink and give Chrysler more money? Damn it! Then Fiat’s going to come pick Chrysler apart and leave the rest to fail. Sounds like a brilliant plan, destined to save thousands of jobs! Way to go, PTFOA. It looks like you’re going to screw the pooch… again.

  • avatar
    Mr. Sparky

    Wow, the automotive gods must have been really offended by Sebrings. Not only is Chrysler about to die, but it destined for the fieriest part of bankruptcy hell.

    Say Hi to Enron for me!

  • avatar
    kowsnofskia

    Why on earth would the bondholders find a Chrysler bankruptcy “threatening” to them? Aren’t they one of the first parties in line to be made whole if a company files Chapter 11?

    Plus, this quote scares me: “once Chrysler emerges from bankruptcy protection, it would largely be owned by Fiat, the U.A.W., the Treasury and its lenders…”

    Sounds like a real crackerjack team there…let’s see, we have an Italian automaker in tens of billions of Euros of debt (with cash flow problems to boot), a labor aristocracy relic that needs to disappear, a clueless and corrupt government department, and a group of banks who dug their own grave and are still in existence because of said department. Truly the best and brightest indeed.

  • avatar
    CPTG

    Turn out the L-I-G-H-T-S; The Party’s OVER!!! So when do we demote the General to Corporal and RIFT him out of the Automobile Business?!!!

    ECONOMICS 1A:

    1.You go into business to make money. You don’t go into business to make friends, save the whales, promote religion, have a hobby, etc.

    2. You make money by selling products or services PEOPLE NEED and/or THINK they need.

    3. Once you are making a ton of money doin what youre doing, a whole bunch of other people will want to be doin what youre doing.

    4. You Stay in business by innovating, cutting costs and providing consumers with a good product

    5. As the business grows, you add people and borrow money (stakeholders). You grow, the economy grows and everyone benefits

    6. ECONOMICS 1B How to go OUT OF BUSINESS (American Style)
    a. Build products consumers do not like or need, that fall apart after 50K miles and don’t honour warranties or proactively fix things you know are broken. Never upgrade your factories or look for efficiencies.
    b. Ignore your legacy costs (Union Unlimited Health Care, Job Banks, Union labour costs) and live with your Union work rules.
    c. Scoff at your competition. Keep telling yourselves People will always Buy American (even if the choice is not a good one).
    d. Merge with an opportunistic german car company that guts your design people, takes your cash reserves and refuses to share product designs because it will ‘delute brandings’. Having not learned from that ‘shotgun wedding’, this time marry an opportunistic Italian Car Company that will only merge with you in bankruptcy protection
    e. Allow a CEO who wrecked one American corporation to pay you to allow him to ‘run your company into the ground’
    f. Have the government offer your stakeholders $0.22 per dollar while your owner, a financial group, refuses your requests for money.
    g. Borrow billions from the government without addressing your ‘burn through’ rate.

    Now compair Cryco’s (and GM’s) modalities to that of Toyota, Honda, BMW, Madza, KIA, etc. Bottom Line: I don’t care where my new car is made, I don’t care if the CEO is paid $500million a year or a $1.00 a year, I dont care if my car is built with UAW workers or prison labour in China. I just want it to look nice, do what I want it to do FLAWLESSLY, get me from point A-B and return, is fun to drive, gets good gas mileage and will last over 200K miles (like my Madza Miata did).

  • avatar
    lw

    The bonds are backed by all the assets right?

    So who has Fiat been negotiating with? Chrysler or the banks?

  • avatar
    Pch101

    Why on earth would the bondholders find a Chrysler bankruptcy “threatening” to them?

    If the government creates a “Good Chrysler” and a “Bad Chrysler” prior to filing, the bondholders will find themselves with a claim only against the “Bad Chrysler”, which should leave them with little or nothing.

    100% of 0 = 0. Nothing fuzzy about that math.

  • avatar
    OldandSlow

    With all the BK rumblings, sales will be dismal at your local Chrysler, Jeep and Dodge dealer.

    Who in their right mind is going buy a new vehicle from a company about to go TU ?

  • avatar
    Edward Niedermeyer

    PCH101: That’s got to be the worry for the bondholders. They’re going up against a federal government that has been throwing out the old rule book if the ends justify it. The last six months prove that the feds give up a lot of money at poker, but then get all vindictive and capricious. Not that could happen here. Oh wait…

  • avatar
    Pch101

    They’re going up against a federal government that has been throwing out the old rule book if the ends justify it.

    Chrysler tossed out the rule book last year when it decided to blackmail the people of the United States of America. We gave them our blood, and in return, they tried to sell us the Sebring.

    The bondholders should have objected then if they didn’t like it. That money belongs to me, and personally, I want it back.

  • avatar
    cardeveloper

    How can the Treasury department protect pensions, etc? What legal precedence allows this? Even better, what is the point, that’s only a small portion of their issues.

  • avatar
    mtr2car1

    With all thats been said and written about this deal – the question that still seems to be missing is “what does either party get out of this?”

    Fiats are not going to arrive or be built here for years and Chrysler gets ??? in terms of tech or talent that going to help them right now.

    To me, it looks like the US Boys lose $1 (I made that number up of course) for everything they sell at todays rate – do the Italian Boys see that if they break the unions and crash the dealer and skin the bondholders that they then make $10 for for every sale??

    Interesting days indeed

  • avatar
    Hippo

    If I were a bondholder I would tell them “Make my day”

    It is very doubtful that a BK judge could afford to be as favorable to the UAW extortionists as this fraud permeated administration.

  • avatar
    crackers

    I read an interesting article in Newsweek the other day (http://www.newsweek.com/id/194820) that also explains why so many investors are eager to see a company go bankrupt. They have purchased Credit Default Swaps (CDS), a type of insurance against bankruptcy. If the company goes bankrupt, CDS pays out and the investors lose nothing.

    AIG has been selling these insurance products for while and they are a good part of the reason AIG is in trouble. If the government hadn’t bailed out AIG, then the CDS would be worthless and maybe the investors in these companies wouldn’t be so hard headed.

  • avatar
    pf21

    If the smart owners of Chrysler have bought credit default swap for the company, they would rather claim the insurance payment instead of going through bankruptcy.

  • avatar
    Luther

    “once Chrysler emerges from bankruptcy protection, it would largely be owned by Fiat, the U.A.W., the Treasury and its lenders,”

    Yeah…Can’t wait to purchase a car from this pig.

  • avatar
    MikeInCanada

    Re pf21 :

    That’s the $64 Question – Just how hedged are the ChryCo bondholders…. Who knows? That is the interesting thing about the opaque CDO market – and when I say interesting I mean entertaining – for us that is.

    Not being an accountant I don’t understand how as a bondholder I can find myself holding bonds in the ‘bad’ Chrylser (or GM for that matter)?

    I would think that the bondholder would ‘resist’ this and throw up every roadblock possible; knowing that time in bankruptcy is on their side, not the governments.

  • avatar
    akear

    Nardelli looks to be 0 for 2 after leaving GE. He had plenty of time to marginally improve Chrysler products and did nothing. He even cancelled Project D, which was to replace the Sebring. Now the Sebring will be based on an even less reliable Fiat platform.

  • avatar
    motownr

    RF: Can you draft TTAC’s resident BK expert lawyer to tutor us on the potential of POTUS to screw the debtholders in a 363?

    The way I understand it, the “good” assets remain the collateral of the lenders, so a 363 isn’t much of a threat. The banks/hedgies still have a claim on Jeep, Mopar, Nardelli….strike the last.

    Also…does anyone else sense the irony of the government spending literally TRILLIONS on the various economic programs…only to toss a major employer into bankruptcy over a few billion owed to legitimate parties?

  • avatar
    guyincognito

    Ok, after some contemplation, I’m going to go less cynical on this. The US government is not going to just banana republic the rules on this one and force Chrysler into bankruptcy then put themselves ahead of the secured bondholders setting the precident for their very simmilar financial agreement with a significant number of banks and soon newspapers, because that would be totally crazy.

  • avatar
    davey49

    “With all the BK rumblings, sales will be dismal at your local Chrysler, Jeep and Dodge dealer.”

    Sales are dismal already
    Wranglers, minivans and Grand Cherokees will sell even when the company is out of business. Those cars will be built and sold by somebody somewhere

    “Who in their right mind is going buy a new vehicle from a company about to go TU?”

    Why not? Once a car is built, it really doesn’t matter. People worry about things like warranty repairs and depreciation too much. It’s not like issues can’t be figured out.

  • avatar
    taxman100

    My wife and I are waiting to see how this plays out – we are looking at minivans, and I’d buy a Grand Caravan without a factory warranty if the price was low enough.

  • avatar

    Nike is doing a good job selling the exact shoes from the 70’s they produced. During this holding pattern maybe chrysler should pull out some old jigs, and make retro units for us diehards. I’d love a brand new 71 hemi cuda

  • avatar
    ronin

    Once a car is built, it really doesn’t matter. People worry about things like warranty repairs and depreciation too much.

    What guarantee is there that the part I need will be available in 3 years? 7 years? 10 years? Why should I buy something now that might be unrepairable without the vendor being around to provide the supply?

    This is definitely a concern, and you are right, I do worry about it.

  • avatar
    ronin

    the Treasury has agreed “in principle” to protect UAW pensions and retiree health care…

    Yayyy!! The overwhelming majority of Americans who receive no pension must be compelled against their will to support those with a sweetheart pension! Very sovietesque.

    Even though the pension was a private contract between employer and employee, and it would be a sad thing to see it go, somehow it is now all our responsibility. We who never got to benefit from the high wages, high benefits, job guarantees, and indeed from the union whose very existence ensured that fewer jobs would be available for all.

  • avatar
    tparkit

    If Chrysler files I expect not a bankruptcy, but a “bankruptcy” – in which the taxpayers pick up liabilities so the vultures can access unencumbered assets, and UAW members, working and retired, can loot the treasury. Naturally, this will all be a huge success for the Obama administration, “proving” that a win-win scenario is possible. The deal will be trumpeted up front, and it will contain pseudo-guarantees to protect the taxpayer. Much later, the true cost to the taxpayer will be quietly slid into the vast morass of money flowing through Washington agencies.

  • avatar
    mattstairs

    Ronin:

    The overwhelming majority of Americans who receive no pension must be compelled against their will to support those with a sweetheart pension! Very sovietesque.

    We who never got to benefit from the high wages, high benefits, job guarantees, and indeed from the union whose very existence ensured that fewer jobs would be available for all.

    This is so brilliant and eloquent it had to be repeated.

    +1!

  • avatar
    George B

    …He even cancelled Project D, which was to replace the Sebring. Now the Sebring will be based on an even less reliable Fiat platform.

    No, the Sebring and the Chrysler brand are dead meat. R.I.P. 2009. My guess is that Fiat thinks they have a better shot at selling Fiats to Americans if they also have some Jeeps for sale on the same lot and the government is happy to give Fiat responsibility/blame for pulling the plug on Chrysler.

  • avatar
    jpcavanaugh

    jwolfe:
    Nike is doing a good job selling the exact shoes from the 70’s they produced. During this holding pattern maybe chrysler should pull out some old jigs, and make retro units for us diehards. I’d love a brand new 71 hemi cuda

    Great idea, but all the old stuff is gone. During the Iacocca era when Chrysler was scrapping everything it could, it dumped all the tooling to make the 440. So when Ford and Chevy dusted off the old 460s and 454s for HD trucks in the late 80s or early 90s, Dodge had nothing but the 360, and had to do the Cummins diesel and eventually the V10 that was derived from the 360.

  • avatar
    Packard

    A large number of bondholders are the banks the government is supposedly concerned don’t have enough capital. And, of course, Obama has made it abundantly clear that he’s willing to go after anyone corporate for anything.

    Which puts the Chrysler deal into Never-Neverland.

    If a bondholder gets a better deal with liquidation than with Obamization, he’s better off saying ‘no.’ If that bondholder is a fiduciary – as are many of those who bought Chrysler bonds when Cerberus took over – he HAS to say ‘no,’ because it is not only his legal obligation to do so, but if he’s going to be damned if he does and damned if he doesn’t, he’s got a better defense by taking the position in which he doesn’t screw those to whom he has the legal obligation of preserving the investment.

    The core problem in the Chrysler deal is the UAW – and that’s why this has no chance, ultimately, of staying out of liquidation. The basic goal of Obama is preserving the UAW’s platinum plated pension and health care benefits. But, that saddles the company with a huge liability, and guarantees that any equity bondholders might receive in exchange for debt ultimately will be worthless. Moreover, if the UAW is itself to get equity in this deal, that means the bondholder’s equity position is unlikely to give them any control over the company’s business decisions.

    That’s simply not a deal. It’s a screw job.

    That is to be expected from Obama, who has never shown the slightest inclination toward confronting any constituency of the Democratic party, and has an interest in the auto industry primarily to force Americans to buy little bitty “green” cars at prices sufficiently stratospheric that the UAW leaders can still maintain their private country club.

  • avatar
    Rod Panhard

    “once Chrysler emerges from bankruptcy protection, it would largely be owned by Fiat, the U.A.W., the Treasury and its lenders,”

    I’d rather buy a car made by Moe, Larry and Curly. No wait, even worse …. Moe, Larry, and Curly Joe … the Stooge who wasn’t up to snuff.

    (no disrespect meant to the actors who portrayed The Three Stooges as Howard, Fine & Howard were great men. Brilliant even. But the characters were indeed stooges and every Sebring should be sold with a complimentary eye-gouge.)

  • avatar
    Pch101

    If a bondholder gets a better deal with liquidation than with Obamization, he’s better off saying ‘no.’

    He won’t, because the bondholder will be left with a claim against Chrysler, which will have been transformed into a “bad company.” The bondholders will make close to zippo, because the spin off of the “good company” will move forward, while the “bad one” would be liquidated.

    The bondholders could try to litigate, but I suspect that they will lose. In any case, it would take years to sort it out, and they won’t have much leverage.

    The core problem in the Chrysler deal is the UAW

    Not at all. You guys are so absolutely fixated on the union that you can’t see the big picture.

    Here’s the situation — the whole reason why the government is even involved in this process in the first place is because of how disruptive failure would have been last year when things were in free fall after the Lehman debacle. Now, we want our money back, or at least a chance at getting our money back.

    The best outcome for us as taxpayers is if somebody buys Chrysler. The best outcome for those trying to prevent an economic hit is if somebody buys Chrysler. That process can be expedited and be a whole lot cleaner if the government can avoid throwing the deal into bankruptcy court.

    The attorney who was writing for TTAC advocated a pre-pack with government-sponsored DIP financing. Well, guess what? That’s basically what this is, minus the involvement of the bankruptcy court. The concept is the same — sort out the issues with the major creditors (bondholders, secured lenders, UAW), before moving on.

    It should be obvious that the bondholders are posturing. Why shouldn’t the government do the same, and endeavor to get our money back? Let’s remember — if we pay off the bondholders, it’s coming out of our money, as in yours and mine. If that’s what you want, then you can pay my share for me.

  • avatar
    MikeInCanada

    re Pch101 :

    I would not be crazy about the concept of taxpayers paying off the bondholders, however the taxpayers apparently want to do this. That’s right, I said it – because it’s true.

    What is happening today is a (mild form) of nationalization of the auto industry. The Democratic party has never made too much of an effort to hide their feelings about these types of economic policies and you just voted in a Democrat President, and majorities in both houses of congress.

    Only in America your outrage at politicians doing whatever the hell they want is eclipsed by your anger at politicians for doing pretty much exactly what they said they were going to do.

  • avatar
    Pch101

    I would not be crazy about the concept of taxpayers paying off the bondholders, however the taxpayers apparently want to do this. That’s right, I said it – because it’s true.

    I don’t know how you can know, either way. There have been public opinion polls that indicate that the voters are opposed to “bailouts”, i.e. cash infusions into these companies.

    I doubt that Gallup or anyone else has asked them about whether they’d like the idea of losing their prior bailout payments because the large banks who took their TARP money and the hedge funds whose deleveraging put a torpedo to their 401k’s are trying to get a high price for their bonds. Frankly, I doubt that the average guy on the street has paid enough attention to connect the dots.

    The Democratic party has never made too much of an effort to hide their feelings about these types of economic policies and you just voted in a Democrat President, and majorities in both houses of congress.

    Political party has little or nothing do with this. The Lehman meltdown, which was orchestrated by Hank Paulson, backfired on Treasury and nobody wants to see a repeat of that event.

    It’s easy for people on the internet to turn this into a political crusade, but the federal government is stuck dealing with the real-world implications of what this all means. Since last September, the White House lobbed the ideological playbook out the window, and both administrations have since been trying to keep things from falling apart.

  • avatar
    chaguelyons

    Can’t we just cut out the middleman? Forget the Treasury… Send me the names of a couple Chrysler workers and I will write them a monthly check. I can’t believe how long we will be paying for Detroit’s mistakes.

  • avatar
    tony7914

    “Pch101 :
    April 23rd, 2009 at 6:41 pm

    Why on earth would the bondholders find a Chrysler bankruptcy “threatening” to them?”

    I’m not sure if I am right or not about this but before the government could push Chrysler into a pre-packaged C11 isn’t it true that a judge would have to have all major parties in agreement? Also since the lenders have secured loans wouldn’t that also need court approval to split the company as their collateral is probably machinery and other property and can be sold to recover the banks losses? I understand Obama and company feel they can bully the bond holders in GM’s case but the amount in question is unsecured debt, in Chrysler’s case it’s secured debt so the government has less leverage. Also wouldn’t the banks have credit default insurance on their loans and wouldn’t that be affected by agreeing to a prepackaged C11?
    Seems to me that the banks and owners are better served by pushing for C7 bankruptcy than agreeing to what the government has offered so far.

  • avatar
    Pch101

    before the government could push Chrysler into a pre-packaged C11 isn’t it true that a judge would have to have all major parties in agreement?

    Correct. Which is why a true prepack isn’t possible — you won’t be able to get that agreement without serious arm twisting and balls-to-the-wall aggressive tactics. (For what it’s worth, I’ve made this point for quite some time now — the auto companies are not suitable candidates for using a prepack because the bondholders would get in the way.)

    Also since the lenders have secured loans wouldn’t that also need court approval to split the company as their collateral is probably machinery and other property and can be sold to recover the banks losses?

    Sure, the bondholders can litigate that point. I suspect that they will lose. In any case, it would be risky for them to find out after the fact whether they are correct.

    Also wouldn’t the banks have credit default insurance on their loans and wouldn’t that be affected by agreeing to a prepackaged C11?

    Their swaps may not be worth squat. That’s a fundamental component of this entire financial crisis — it’s unclear whether the swaps that were purchased are worth the email bytes that they’re virtually printed on.

    Seems to me that the banks and owners are better served by pushing for C7 bankruptcy than agreeing to what the government has offered so far.

    If that was true, then the bondholders wouldn’t have made a counteroffer that included equity. They obviously aren’t that confident. I can’t say that I blame them — would you want to go to war against the federal government?

  • avatar
    tony7914

    “would you want to go to war against the federal government?”

    Thanks for the reply I wasn’t sure if I understood things correctly or not.

  • avatar
    Srynerson

    Send me the names of a couple Chrysler workers and I will write them a monthly check.

    [Sally Struthers] For only pennies a day, less than a cup of coffee, you can bring happiness to a Chrysler employee. When you make your first donation, you’ll receive a photograph of your employee and each month your employee will send you a personalized letter describing the difference you are making in his or her life. Don’t delay! Tens of thousands of Chrysler employees are living without hope. Won’t you give it to them?[/Sally Struthers]

  • avatar
    davey49

    “Yayyy!! The overwhelming majority of Americans who receive no pension must be compelled against their will to support those with a sweetheart pension! Very sovietesque.
    Even though the pension was a private contract between employer and employee, and it would be a sad thing to see it go, somehow it is now all our responsibility. We who never got to benefit from the high wages, high benefits, job guarantees, and indeed from the union whose very existence ensured that fewer jobs would be available for all.”

    Maybe more people should join unions and fight for wages, benefits and guarantees.
    Think about it, are the union wages too “high” or are yours too low.
    A simple example;
    Better to have 500 employees make $20 per hour than 1000 employees make $10 per hour.
    If the companies have to reduce production and eliminate 1/2 their workforce, so be it.

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