U.S. Squeezes Auto Creditors

[Pirate Smile]

Source: The Wall Street Journal

By JEFFREY MCCRACKEN and JOHN D. STOLL

The federal government is taking an increasingly hard line with the creditors of General Motors Corp. and Chrysler LLC, trying to squeeze billions of dollars in concessions out of banks, bondholders and others.
In both cases, the U.S. is directly and not-so-directly managing negotiations for the companies as they prepare for what could be contentious Chapter 11 filings.

-snip-
The Treasury is pushing GM to offer its bondholders, who are owed $29 billion, a small piece of equity but no cash or new debt, say people familiar with the matter. That's a reduction from an offer made two weeks ago.
This offer would be a last chance at avoiding bankruptcy, which GM worries would be more expensive than an out-of-court solution. The government feels bankruptcy is the best bet.
At Chrysler, the U.S. wants banks and bank debtholders to give up about 85% of the nearly $7 billion they are owed. Banks have yet to make a counteroffer but chafe at that proposal.

Even if issues with bondholders and lenders are resolved, the United Auto Workers union will play a key role in the efforts to restructure. And questions remain whether the Obama administration, which had labor backing in the election, will demand as much pain for workers as for investors. The UAW isn't at the negotiating table because it is waiting to see how much investors in GM and Chrysler, which is controlled by Cerberus Capital Management LP, will have to give up.



Read more: http://online.wsj.com/article/SB123932036083306929.html

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I heard a Union official say that they had made concessions but they haven't been announced. You can see why the Unions have generally been keeping quiet. This is all about squeezing the bondholders right now.

[Thrill]

1. Austan Goolsbee said two weeks ago. This was all about the bondholders

apparently people ignored him. I'll try to find the video

[Pirate Smile]

I know. I remember. This is all about squeezing the bondholders

which is why it pisses me off when people say Obama is trying to hurt the unions.

[IthinkThereforeIAM]

2. Does this have anything to do with derivatives...

... and those that are holding them, especially those that "took an option on a bet" that Chrysler would fold? "At Chrysler, the U.S. wants banks and bank debtholders to give up about 85% of the nearly $7 billion they are owed". Are those derivative holders be considered "debt holders"?

I ask this because those derivative financial instruments they came up with under Reagan are UNREGULATED, therefore I find it arguable that they are caveat emptor.

[high density]

3. Sounds more like plain old corporate bonds. NM

[SpartanDem]

4. This was always

the primary reason for the administration taking the position it did with the industry a couple of weeks ago. The anger toward Obama on DU was very unfounded.

[Hawkowl]

6. Agreed

In fact, it appears to me that the corporate media was trying to whip the public into a frenzy of hatred by lumping the UAW in with the bondholders. I think the banks/bondholders were cynically trying to build a "we're all in this together" against the evil auto companies. I don't think it is going to work and they will either take the equity stake or be just completely shut out as an object lesson.

[starroute]

5. "As much pain for workers as for investors"

How can someone even write a line like that with a straight face? It reminds me of the old gag about the law giving the rich and the poor the equal right to sleep under bridges.