Chrysler To Declare Bankruptcy Next Week?

Edward Niedermeyer
by Edward Niedermeyer

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.

Edward Niedermeyer
Edward Niedermeyer

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  • Pch101 Pch101 on Apr 24, 2009
    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?
  • Tony7914 Tony7914 on Apr 24, 2009

    "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.

  • Srynerson Srynerson on Apr 24, 2009
    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]
  • Davey49 Davey49 on Apr 24, 2009

    "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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