Debtholders vs. U.S. Over Chrysler Deal

[Pirate Smile]

Source: The New York Times

DETROIT — The Obama administration has entered a tense showdown with several of the nation’s largest banks that appears likely to determine whether Chrysler survives.

Last week the Treasury Department, which runs President Obama’s automobile task force, presented banks holding $6.9 billion in Chrysler’s secured debt with a plan under which they would get about 15 cents on the dollar, or about $1 billion.
That is roughly the trading level of Chrysler debt in recent days, a reflection of Mr. Obama’s declaration that the firm is not viable on its own, and must put together a partnership with Fiat or go out of business.

The government’s insistence on an aggressive write-down of the debt is part of an enormous game of chicken with the debtholders.
But it is also a test for Mr. Obama and his Treasury secretary, Timothy F. Geithner, as they deal with banks that, in an effort to keep the American financial system from collapsing, have also been lent money under the government’s Troubled Asset Relief Program.

On Monday the banks, led by JPMorgan Chase and Citigroup, rejected the administration’s plan outright, with some of the debtholders arguing that they would rather break up Chrysler and sell its assets — notably its Jeep brand — because they believed that they would receive more money selling the assets than they were being offered by the administration.

-snip-
The standoff with the banks was underscored Tuesday evening by an administration official. “It is neither in the interest of Chrysler’s senior lenders nor the country for them to advance a proposal that would yield them an unjustified return,” said the official, who requested anonymity because the negotiations were incomplete. “Our hope and expectation is that these lenders take a more constructive position in the coming days that reflects the actual situation that they and the company face.”

Read more: http://www.nytimes.com/2009/04/22/business/22chrysler.html?src=twt&twt=nytimespolitics

[Demeter]

1. Oooh! That's Gonna Smart!

Is this the stress test?

[Norquist Nemesis]

2. Sounds like JPMorgan Chase and Citigroup need to be broken up. n/t

[w4rma]

4. We wouldn't be having this problem if those two were broken up. (nt)

[rwheeler31]

3. Stupid investors have become extortionist.

[SpartanDem]

5. It's their fault

why the auto companies have had so much trouble restructuring. The recent actions with GM and Chrysler were never about taking the unions, but taking on these asshole bondholders.

[JDPriestly]

7. Stupid investors -- may include a lot of pension funds.

It's not just about "rich" individuals. I support being tough on the banks and large concerns, but care has to be taken about who takes the fall -- the poor or the rich.

[AZ Criminal JD]

6. The bond holders will make more money if Chrysler goes bankrupt.

They have no interest in making a deal because if Chrysler is sold off in whole or in parts they will get more money on the dollar than a deal with the government.

[Kolesar]

8. The crushed livelihood of all those Chrysler employees in Toledo is just collateral damage to them.

[AZ Criminal JD]

13. Under the law they can't look at moral issues.

The law requires the board of directors of these bank to get the best deal for their shareholders. The law doesn't not allow them to look at "collateral damage" or other non-fiscal issues. If they do the shareholders can sue them.

[Romulox]

10. Precisely the inverse situation for AIG's "counterparties", and yet we paid them at 100%!

Any explanation for that, Mr. Fiscal Responsibility?

[Romulox]

9. Devil's advocate: Why shouldn't Chrylser's bondholders be paid at 100%, like AIG's "counterparties"

???

[SpartanDem]

11. The banks at least

have already been tons money in order to save their ass, it comes off as more than little dickish for them not to forgive this debt.

[Romulox]

12. That really doesn't make sense. If the Obama admin was demanding concessions based on

the money it has already handed out, it would make much more sense to have demanded these concessions at the time of disbursement.

And yet the Obama is demanding concessions as to this specific debt, even as to parties (e.g. Citi) to which it has handed out tens of billions of dollars with no demands for concessions whatever.

There must be some reason for this (hint: it's administration's desire to demand similar concessions from the UAW, even as it has defended Wall Street bonuses paid from the TARP monies.)

[Lance_Boyle]

14. they would be, if they held CDSs against Chrysler, and Chrysler went bankrupt.

The question is whether the company that sold the CDSs would be able to pay on its obligations. Wouldn't it be funny if Chrysler went bankrupt, the debtholders went to cash in their CDSs, and AIG collapsed as a result?