By on May 2, 2009

TTAC commenter Bluecon points us to Bloomberg, who reveal the identities of some of the 100-odd Chrysler bondholders recently described by President Obama as “hedge fund holdouts.” Yale University, Oaktree Capital Management and assets managed for the University of Kentucky, Halliburton, Kraft Foods Master Retirement and the Bill and Melinda Gates Foundation top the name-recognition list. According to that report, the government plans to ask Judge Gonzalez to let it pay the creditors in that group $2 billion, or 29 cents on the dollar, to end their claims. That’s an interesting strategy, considering the “not-yet-TARPed” bondholders already turned down an offer at 33 cents on the dollar. Let’s see how forcefully the government “asks” Judge Gonzalez to allow the cramdown. Or whether rumblings of a better deal materialize. (Image from Computational Legal Studies‘ amazing interactive map of TARP recipient campaign donations and the US Senate)

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28 Comments on ““Non-TARP” (For Now) Chrysler Bondholders Revealed...”


  • avatar
    jpcavanaugh

    One man’s speclator is another man’s retirement fund.

  • avatar
    dzwax

    Loaning money to a crackhead would yield better returns. Why do people expect to get paid when they loaned money to a flake?

  • avatar
    CarShark

    @jpcavanaugh:

    Like anyone cares about that. People see these investment firms as faceless corporations, so they have no trouble seeing them get ripped off. That’s why incidences of shoplifting are up.

  • avatar
    carlos.negros

    The linked article reveals that Goldman sold Chrysler debt for a discount. My understanding is that some GM debt now sells for 10 cents on the dollar. Why should the taxpayer have to pay more than the 33 cents offered to Chrysler bondholders? I have zero sympathy for the bondholders. Let the court decide.

  • avatar
    John Horner

    The Bloomberg article makes interesting reading if you read the entire thing. These Chrysler debt holders mostly bought their pieces of the pie at deep discounts, and are trying to score an upside by getting the US government to pay them more for their speculative paper than they paid for it themselves. The call themselves the “non-TARP” group simply as a matter of PR spin.

    Ooooh, poor windows and orphans getting run down by the bad man in Washington … NOT.

  • avatar
    CarShark

    I did read the whole thing, Horner, and the article said that some investors stand to make more money on the deal if they bought at the time Chrysler’s debt was trading closer to 13 cents on the dollar last March. But what about those secured creditors who bought last summer at 49 cents on the dollar? They stand to lose 40% on what was supposed to be a safe investment, simply because the President sez so. I would be upset, as well.

  • avatar

    I have zero sympathy for the bondholders. Let the court decide.

    Actually, that’s exactly what the non-TARP bondholders are saying. It’s the White House that wants to keep it out of the courts because they want to dictate the terms, not let the court decide. That’s because the rights of the senior creditors are pretty well established. The bondholders bought paper with specific contractual terms that guarantee them first standing in the event of a bankruptcy, ahead of junior creditors like the UAW. In bankruptcy court the bondholders have a very strong claim. The holdout bondholders have a fiduciary obligation to their customers to get the best deal. They offered to take a 50% haircut but that’s not enough. When the government offered them 29 cents on the dollar and 10% of the equity while the UAW, an unsecured junior creditor ends up with a majority share in the company is not just a gross abuse of restructuring but also a slap in the face.

    Either contracts are contracts or we live in a banana republic.

    I really don’t understand why you folks can’t admit the basic injustice in what the Obama administration is trying to do. The property rights of the bondholders and the rule of law are being abused.

    Furthermore, the lawyer of the non-TARP bondholders claims that “one of my clients (Perella Weinberg) was directly threatened by the White House, in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight.”

    What’s interesting is that apparently a large chunk of teachers union and other public employee union pension and retirement plans are represented by the non-TARP Chrysler bondholders, who hold $1B of the $6.9B in Chrysler debt. A little bit of blue on blue action there.

    It’s unclear if the PTFOA has the authority to do any of this in any case. President Truman got slapped down by the SCOTUS when he tried to seize the steel industry in wartime. It remains to be seen if the President has the legal authority to convert loans to private enterprises into controlling equity stakes, and use the power of the gov’t and those loans to leverage more senior stakeholders into junior positions.

    This the the gov’t of the United States acting like Tony Soprano.

  • avatar
    ed2222

    I just don’t get government bailouts.
    When we bailed out AIG, we made sure Goldman Sach and others that held CDSs got full 100% value for what AIG owed them, which was a lot more than the Chrysler deal. Im not saying the chrysler investors should get anything close to full dollar value, more like using it to illustrate how wrong the AIG bailout was

  • avatar
    dzwax

    Damn right, because the president says so. Its all tax money now, their investment went to zero long ago. Why should the taxpayers bail out bond holders?

    Monday morning, Crackler, looking like it hasn’t slept in 4 days, will be knocking on the President’s front door. “Hey man, got an extra billion I can borrow until payday, I need smokes bad, man. You know I’m good for it.”

  • avatar

    Ooooh, poor windows and orphans getting run down by the bad man in Washington … NOT.

    Contracts are contracts, even when purchased by speculators. Either senior secured debt is senior secured debt or you have a free for all where the gov’t changes the rules whenever you want. If so, kiss the capital markets goodbye.

    Who will want to invest if the gov’t will change the rules midgame?

    Better off letting a judge decide instead of a politician whose party has received millions from one of the parties.

  • avatar
    bluecon

    I have zero sympathy for the bondholders. Let the court decide.

    Fine to say that, but if it was your money you would expect the law to be followed.

    Like I said before the real problem here is that the investors will be scared off investing in US companies since the government appears to be very willing to confiscate your assets and ignore the law.

    That is not a good thing. The investors will take their money to Asia at this critical time. A whole bunch of no good.

  • avatar
    dzwax

    Investors will still invest in vibrant, profitable, well managed business.

  • avatar
    Landcrusher

    Wow, what a mean, insensitive bunch. A regular rogues gallery if there ever was one. I completely change my mind and now see the President’s point!

  • avatar
    Landcrusher

    dzwax,

    Of course, this will slow investment somewhat, don’t you agree? Even if the sure thing still looks attractive, there will be some companies that look less attractive due to some likelihood of the government getting involved. So the question then becomes what percent is it?

    1%, 3%, 5%? Less, more?

  • avatar
    bluecon

    Investors will still invest in vibrant, profitable, well managed business.

    And most of them are in Asia.

    This is a critical thing.

    If I could make money here I would invest in industry in a second. The taxes and the regulation are so heavy it is not feasible. The regulations are much more a problem than the wages or the taxes. The government dictates how you run your company. I have a friend that payed over $50,000 in fines and legal fees for a tiny safety infraction. The government was out to get him in conjunction with the unions. He says he will never invest another penny here.

    There are much easier ways to make money than building a company and being regulated by the government. That is a big problem for the country.

  • avatar
    Luther

    Doesn’t “Taxpayer” come from the French meaning “Greatest Fool”?

    Kinda makes one wonder about Obama’s (8 year old) outlook on the “Right Thing to Do”…..

  • avatar
    agenthex

    The bondholders bought paper with specific contractual terms that guarantee them first standing in the event of a bankruptcy, ahead of junior creditors like the UAW.

    Repeating false info after being informed of such is just embarrassing. The liens are pretty much where they always were.

    There are much easier ways to make money than building a company and being regulated by the government. That is a big problem for the country.

    Of course it’s much easier to make money when everything except profitable venues can be externalized. For example, had chrysler been profitable, you can guarantee Cerberus will want to keep as much of that as possible, but since it wasn’t, we get the burden of unemployment, etc.

    Companies don’t bitch and whine when the regulatory system facilitates profit, and in fact pay massive amounts to general guide it in their favor. They also tend to splurge on PR to guide the plebs to see it that way.

    For example, the latest talking point is “rewriting bankruptcy laws”, and the usual set of tools are being used to repeat it until it sticks despite the blatant dishonesty of the statement.

    It’s also pretty apparent people who say this kind of stuff have never been in places (much worse than the banana republic) that lack government regulation.

  • avatar
    shaker

    “They stand to lose 40% on what was supposed to be a safe investment, simply because the President sez so.”

    These investors stand to lose the most because they got in on the wrong end of the “upside-down” pyramid scheme.

    Those who “got-in” at the right time (who stand to make the most from a bankruptcy) are playing the system – vultures who will laugh at the honest investors who actually lose money on the deal.

    Of course, the administration should not attempt to re-write the law – these bondholders should benefit from a bankruptcy as if the feds and the UAW weren’t involved at all.

    Any success by the Government to short the bondholders (by influencing the judge?) will probably end up in some sort of class action suit, which will (at some time in the future) result in the government paying for that piece of the pie, anyway.

    What a mess.

  • avatar
    jkross22

    @Ronnie:

    “I really don’t understand why you folks can’t admit the basic injustice in what the Obama administration is trying to do. The property rights of the bondholders and the rule of law are being abused.”

    The answer to this question lies more in ideology than doing the right thing.

    Most people don’t want to see the world in black and white. It’s much easier for them to see shades of gray where “it just depends on your perspective”.

    Well, this is a black and white case. Wrong is wrong, regardless of who is being wronged.

  • avatar

    Repeating false info after being informed of such is just embarrassing. The liens are pretty much where they always were.

    Yes, and first lien secured creditors still come before junior unsecured creditors – at least in bankruptcy court. The PTFOA wants senior creditors to accept 29 cents on the dollar and 10% of the company while a junior unsecured creditor (the UAW’s VEBA) gets 50% of the company.

    Let the court decide. The PTFOA desperately wanted a deal outside of bankruptcy court because the judge will likely treat senior creditors as senior creditors.

  • avatar
    Pch101

    a junior unsecured creditor (the UAW’s VEBA) gets 50% of the company.

    And the value of that company, as of today, is zero.

    Remind me now of what is so fantastic about this equity. From here, it looks like a sucker’s bet and a big ol’ dice roll. The cash is far, far better than the stock.

  • avatar

    Companies don’t bitch and whine when the regulatory system facilitates profit, and in fact pay massive amounts to general guide it in their favor. They also tend to splurge on PR to guide the plebs to see it that way.

    No question. Many people make the faulty assumption that corporations are politically conservative or in favor of free markets. Corporations are politically correct and in favor of whatever market controls will allow them to make more money. Few corporations have a free market corporate culture. Existing companies fight regulation and then when they lose that fight they lobby government for regulations that favor them and keep barriers high to any new competitors.

    For example, the latest talking point is “rewriting bankruptcy laws”, and the usual set of tools are being used to repeat it until it sticks despite the blatant dishonesty of the statement.

    It’s not dishonest. Yes, technically the President and his PTFOA are not rewriting bankruptcy laws. They are trying to run an end around to avoid those same law. They are not rewriting the bankruptcy laws, they were trying in the case of Chrysler and still trying in the case of GM to achieve a restructuring that would leave both companies with a majority equity stake shared by the federal government and the UAW, a situation that a bankruptcy judge might not effect.

    The UAW is an unsecured creditor. The federal gov’t is a Johnny-come-lately unsecured creditor of last resort. In normal bankruptcy they are both junior to holders of secured credit and their claims to assets or equity in a restructured company would be secondary to the claims of secured creditors.

    While a bankruptcy judge has some flexibility (some unsecured creditors are more vital to the company’s operation than others), I’d still trust a judge to adhere to the rule of law more than I would a politician.

    Who would you personally rather say how your own company or personal finances should be organized, a judge or a politician?

  • avatar

    Remind me now of what is so fantastic about this equity. From here, it looks like a sucker’s bet and a big ol’ dice roll. The cash is far, far better than the stock.

    At this point in time, yes, but if equity in the restructured company is going to be diveed up, the senior creditors should come first in line.

  • avatar
    Pch101

    At this point in time, yes, but if equity in the restructured company is going to be diveed up, the senior creditors should come first in line.

    Wrong. Their piece of pie got bigger because the equity went to another party. Less competition for what is left.

    If life was “fair”, what should happen here in the case of GM is that it should be liquidated in a 7, leaving scraps for the secured creditors (including the government) and a whole lot of nothing for everyone else.

    That would leave ZERO to your bondholders. They’re going to do better than that. You should stop griping, and thank your lucky stars that your Uncle Sam is going to leave them with far more than they would deserve in a “fair” outcome.

  • avatar
    agenthex

    It’s not dishonest. Yes, technically the President and his PTFOA are not rewriting bankruptcy laws. They are trying to run an end around to avoid those same law.

    Avoid the law? That’s quite a biased description of trying to avoiding “bankruptcy” which certainly doesn’t help the image of “Chrysler”. As has already been explained, pretty much everyone is getting a better deal than otherwise would’ve happen without the gov, courtesy of our tax dollars.

    The underlying game here is that the holdouts feel they have less to lose than the other stakeholders to turn this into a messy affair, so the description that they’ve “decided to hold out for the prospect of an unjustified taxpayer-funded bailout” is exactly correct. If anything I’d think their package was designed to be generous to avoid the stigma of a “Chrysler bankruptcy” and to try to resume normal operations.

  • avatar

    leaving scraps for the secured creditors (including the government)

    There’s nothing securing the government’s loans.

    The government can’t just swoop in and declare its debt to be equity.

  • avatar
    Pch101

    There’s nothing securing the government’s loans.

    There’s only problem with that statement; it’s absolutely false.

    ________________________
    Entry into a Material Definitive Agreement

    Loan and Security Agreement

    On December 31, 2008, General Motors Corporation (“GM”) and certain of its domestic subsidiaries entered into a loan and security agreement (the “Loan Agreement”) with the United States Department of the Treasury (“UST”), pursuant to which the UST agreed to provide GM with a $13.4 billion secured term loan facility (the “Facility”). GM borrowed $4.0 billion under the Facility on December 31, 2008 and is eligible to borrow an additional $5.4 billion on January 16, 2009 and $4.0 billion on February 17, 2009. GM’s ability to make the subsequent borrowings is subject to its satisfaction of the requisite borrowing conditions, and, in the case of the final $4.0 billion on February 17, to the UST having funds available for this purpose.

    The loans under the Facility (the “Loans”) are scheduled to mature on December 30, 2011, unless the maturity date is accelerated in the event the President’s Designee (as defined below) has not certified GM’s restructuring plan by the deadline for such certification, all as described below. Each Loan will accrue interest at a rate per annum equal to the three-month LIBOR rate (which will be no less than 2.0%) plus 3.0%.

    GM is required to prepay the Loans from the net cash proceeds received from certain dispositions of collateral securing the Loans, the incurrence of certain debt and certain dispositions of unencumbered assets. GM may also voluntarily repay the Loans in whole or in part at any time. Once repaid, amounts borrowed under the Facility may not be reborrowed.

    Each of GM’s domestic subsidiaries that executed the Loan Agreement (the “Guarantors”) guaranteed GM’s obligations under the Facility and the other guarantors’ obligations under the other loan documents pursuant to a guaranty and security agreement, dated as of December 31, 2009, made by the Guarantors in favor of the UST (the “Guaranty and Security Agreement”). The Facility is secured by substantially all of GM’s and the Guarantors’ U.S. assets that were not previously encumbered, including their equity interests in most of their domestic subsidiaries and their intellectual property, their real estate (other than their manufacturing plants or facilities), their inventory that was not pledged to other lenders and their cash and cash equivalents in the U.S., subject to certain exclusions. The Facility is also secured by GM’s and the Guarantors’ equity interests in certain of their foreign subsidiaries (limited in most cases to 65% of the equity interests of the pledged foreign subsidiaries due to tax considerations), subject to certain exclusions. The equity interests in domestic and foreign subsidiaries that have been pledged to the UST have been pledged pursuant to an equity pledge agreement, dated as of December 31, 2009, made by GM and certain of the Guarantors in favor of the UST (the “Equity Pledge Agreement”).

    http://biz.yahoo.com/e/090123/gm8-k.html

  • avatar
    zapzappa123

    The Banks wrote CDS swaps on all of this and don’t want to pay, so their friends at the Fed are changing the rules to accommodate them and screwing the senior debtholders in the process.

    When the investment banks speculate with no intention of paying and then “holdout” it seems that contract law is suddenly unimportant yet when they want their bonuses contract law must not be violated.

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