"Non-TARP" (For Now) Chrysler Bondholders Revealed

by Edward Niedermeyer

Published: May 2nd, 2009

non tarp for now chrysler bondholders revealed

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)

Edward Niedermeyer

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4 of 28 comments

U mad scientist on May 03, 2009
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.

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Ronnie Schreiber on May 03, 2009
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.

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Pch101 on May 03, 2009
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

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Zapzappa123 on May 15, 2009

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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