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Automotive News & Views Can Chrysler Turn It Around in Bankruptcy?
464 messages, Last post on Oct 02, 2009 at 2:05 PM
You are in the Automotive News & Views Forum. Your Hosts are steve_ & claires
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Replying to: bpizzuti (Jun 09, 2009 7:30 am) I agree with you there for sure. Only pre bailout assets should be liquidated and the bondholders get their money first. Then however the law provides. If you read one of the articles dealing with the lawsuit. The pension fund bought the bonds last year at 43 cents on the dollar. Their secured value would make them a profit if the company goes broke. If not they are due the $1 per share when they come due. So it was a smart investment if the government does not try to change the Constitution mid stream.
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Replying to: bpizzuti (Jun 09, 2009 6:06 am) Good comparision. Now imagine you're a government employee just like the president is. You're a school bus driver. You're authorized to only pickup kids and take them to school. You see me with my car on the side of the road with a flat. I'm going to be late for work again and could get fired, so I'm jumping up and down, begging for you to break the rules and let me on the school bus. There are plenty of other cars that see my situation, and could stop and help me if they wish. I agree with you and gagrice that government loans to Chrysler (i.e. Cerberus)shouldn't be included in payments to debtors. |
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Replying to: gagrice (Jun 09, 2009 8:03 am) Ok that detail actually changes things a lot more. Did they ever think maybe that the reason WHY they only had to pay 43 cents on the dollar is because everyone figured Chrysler was going to default and they wouldn't get anything? I think it was already determined that Chrysler didn't have enough assets to cover all of their bonds, right? Particularly in this economy, when no one is going to pay top dollar. Someone saw liquidation in Chrysler's not too far future, saw someone was going to end up not getting anything for their toilet paper, and decided it wouldn't be them. So they needed to find a sucker who would give them money for their Chrysler bonds. In steps the Indiana Pensions, who got suckered into taking them AND paying for them. And the seller then laughed all the way to the bank. Now if I was the BK judge, I'd go as far as offering them 43 cents on the dollar...I DO have some sympathy for their pensioners, and maybe the fund managers DID get suckered, and maybe we can be kind-hearted enough to compensate them the money they got suckered out of (provided it doesn't start giving them access to the money from the bailouts). But not a cent more. And they're not going to make a profit off of taxpayer bailout dollars, which I can pretty much guarantee they've got in mind.
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Replying to: gagrice (Jun 09, 2009 8:03 am) Chrysler's credit rating at the time of the purchase was "B-", well below investment grade. In other words, the Indiana pension fund should never, ever even considered buying these "junk bonds". Later that month, July 30, 2008, Chrysler's rating droped to "CCC". To me, this is another example of the type of greed that got us into this recession. The investment manager risked this pension fund on a gamble. They should have never bought these bonds in the first place. I'm not an economist, nor do I play one on TV but I have read a lot and listen to many experts. You would have a hard time finding anyone recommend buying Chrysler's bonds in July 2008 as part of long term investment. |
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Replying to: kernick (Jun 09, 2009 8:16 am) As for the Chrysler (and soon GM) issue it seems to boil down to "the greater good" versus "bondholder's rights". Either way probably has complications. Finding against the bondholders will have costs down the road such as potentially higher interest rates due to increased debt holder risks. However, going for the current bondholders may likely really mean Chapter 7 liquidation rather than Chapter 11 reorganization (look at the balance sheets!) and a large hit to jobs and the US economy. I don't think the decision should be made solely on narrow legal interpretations for either side because of the potential ramifications. I don't know that there is a clearly "correct" answer here, and whatever happens we as a nation need to put our disagreements and preferences aside when the decsion is finally made (and be glad we didn't have to be the one deciding this tough issue!) and start working together to turn things around. My experience over the years has been that hardliners on any side of an issue seldom resolve anything, it is the moderates who have to step in and be practical to get anything actually done. |
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Replying to: bpizzuti (Jun 09, 2009 8:18 am) I think the investment manager for the Indiana pension fund knew exactly what he was doing. He had no business investing these retirement funds in junk bonds. You do not invest retirement funds in companies with "B-" rating and in an industry that was on "life support". This whole soap opera reminds me of the guy who gets a "tip" about a company and buys tons of stock looking for a quick profit. And then gets upset when the scenario doesn't go his way and he is left with worthless stock. If my money was tied in these bonds, I would be furious at the fund manager for buying junk bonds.
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Replying to: berri (Jun 09, 2009 8:42 am)  Well said. Easy for us to debate this issue. Kind of fun in a sadistic way but very educational. Learning a lot form everyone. |
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Replying to: berri (Jun 09, 2009 8:42 am) Yeah, except you've seen how the hardliners treat moderates these days, right?  Anyway, this whole big mess is the result, not the problem. This is what happens when you start getting into bailing out private companies with few to no preconditions. And even if there are some (like seniority of debt) they get argued over. I love the seniority of debt bit...bondholders want more for their Chrysler bonds, so they figure they can tweak the rules and lobby for a taxpayer bailout so there's more assets in the company to collect. Government is smart enough to see this coming (though it's probably more like dumb luck) and decides to tweak the rules to make sure that government debt is senior and the bondholders can't tweak the rules to get at the taxpayer dollars. Bondholders hate this, so they try to tweak the courts, then government tweaks the BK process, tweak tweak tweak.. See where all the rule tweaking gets us? Into a deep disgusting mess. |
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Replying to: dtownfb (Jun 09, 2009 8:53 am) The retirees will next get to sue either the investment company (if Indiana hires outsiders to manage the fund; otherwise, maybe they'll be able to sue the state). Or they'll sue banks doing the underwriting for the Chrysler bonds. That's what they did with Worldcom. (Basex.com)
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Replying to: steve_ (Jun 09, 2009 9:29 am)
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