Posted on 05/01/2009 6:41:00 AM PDT by reaganaut1
The U.S. government's restructuring plan for Chrysler LLC is sounding alarm bells for those in the business of lending money who worry that the plan could subvert decades of standing legal precedent and investing principles.
Banks, hedge funds and other investors that hold $6.9 billion in secured loans are being asked to release their contractual claims over Chrysler's assets in exchange for a fraction of what they are owed. Many lenders see that as a raw deal, because in the bankruptcy code's priority scheme, secured creditors are supposed to get paid before unsecured creditors such as employees.
Investors worry the government-led plan could rewrite the rulebook on corporate restructurings and the entitlements of creditors. They say that could make lending more expensive for corporations, while crimping lenders' willingness to get involved with companies that have a connection to the government.
As of late Wednesday, about 20 of the 46 lenders were opposed to the government plan, according to a statement from a group of debtholders. If more than half the lenders oppose the reorganization, the Chrysler deal could be stuck in bankruptcy court for far longer than the government hopes.
"We lent money to Chrysler under a contract that gave us the first lien on its assets. There was no agreement that union members or other unsecured creditors could jump ahead of us in claims," said George Schultze, managing member of Schultze Asset Management, a distressed-debt hedge fund manager. "This is about contract and bankruptcy law, and upholding agreements -- which is important in the grand scheme of things."
On Thursday, President Barack Obama had harsh words for hedge funds and private investment firms that refused to take a big haircut on their secured Chrysler loans. Without their consent, the company had no choice but to file for bankruptcy protection.
(Excerpt) Read more at online.wsj.com ...
/sarc
Many of these banking and financial institutions see the writing on the wall and are trying to give the TARP money back, but the Obama Administration is calling for a “stress test”, something that will allow Obama to decide who is fit to survive.
In other words, Obama wants to grab the banks.
He already owns most of the auto industry,
except for that hold out FORD.
Health care is next.
History will declare the election of the Most Merciful Barack Hussein Obama, the moment when America became a socialist state, and likely will call this the Fall of America.
You are correct about stifling credit by shafting bankers. Thank goodness the Senate rejected the bankruptcy cramdown bill. If you view that bill in conjunction with Obama’s Homeowner Affordability and Stability Plan, it basically puts a gun to lenders to take write-downs on mortgages entered into in good faith, effectively enacting widespread coercian of banks to hand over bank capital to repair the balance sheets of undisciplined individual borrowers.
Had that legislation passed, any borrower with a debt-to-income ratio greater than 31% would have had a much, much more difficult time obtaining credit, else the bank would be risking cramdown in bankruptcy. I assure you, many bank loans are made successfully in the 30% to 45% DTI range. Part of the effect of Obama’s “plans” have had the effect of borrowers viewing government as an ally against the bank or an eventual savior to bail them out. Defaults have gone up as a result.
Are Obama and the rest of the libtards in government REALLY wanting to increase the availability of lending? As usual with liberals, their words say “yes”, but their actions say “NO”.
of course the response should be for investors to park their money where the government doesn’t look likely to take it away from them.
Thats gonna be bad, huh?
and FORD will probably be punished one way or another
The major creditors who agreed to be subordinated and take an outsized haircut were wards of the state - strong-armed by Timmy G in Treasury. The others didn’t have the fed entanglements and therefore are able to insist on the rule of law over fascism.
“and FORD will probably be punished one way or another”
and if that happens, I can see Ford moving its headquarters to Europe or Asia.
>and FORD will probably be punished one way or another
Already are. The are left to compete against liquidation
prices of Chrysler and GM. Banks will be foreclosing on
many, many dealerships soon. Look for auto auctions of
new cars starting at %20 off, then next week at %40 off,
then next week at %60 off.
How can Ford compete against that?
If this stands, from now on, the only available source of credit will be the federal government -- which seems to be exactly the plan, for the complete socialization of the economy. This is VERY big.
The lamestream media Obama cheerleaders just parrot his ‘evil hedge funds’ line, while totally ignoring the rule of law. Yesterday the Senate narrowly defeated the ‘cram down’ bankruptcy provision which would have given judges the right to screw the holders of mortgages of people who filed for bankruptcy. The left has no regard for law when it comes to contracts, but they do not realize the unintended consequences will be a diasaster for our country.
Does anyone seriously think China or the Arabs will continue to buy our debt if they think the terms and amounts can be changed by the whim of Obama? Of course not, which is why long term interest rates are spiking upward in spite of hellicopter Ben buying huge amounts of Treasuries. The curtain has been pulled back, and the world sees the mighty OZLIKE Ben Bernanke is as foolish as wht wizard of OZ, frantically pulling leversm to no affect.
I agree with your post - but I wanted to mention your tagline. It is incomplete.
It currently reads, “I HATE tax & spend liberals.”
It should read, “I HATE tax & spend liberals; conservative ones too!”
Of course those “secured creditors” will either relent to Husseins blackmail or face years of investigation, hearings, IRS audits....get the picture?? Ain’t it great to declare a permanent holiday for law and justice??
If this stands, what private investor will be interested in buying bonds?...
For the long term, that is the crux of this matter. If politicians can distort the law to overturn contracts, be they mortgages or bond agreements, then there is no way to evaluate the risk in debt instruments and,hence, no way to price them. The secondary markets will dry up immediately and liquidity will disappear.
The law is the last bulwark of free market. If the judges fail us now what is left?
Your point is correct and well taken . . . fixed it.
This has been superseded by events — the Chrysler situation has now gone to NY bankruptcy court.
What keeps haunting me is, “How is this legal?” Under what law, what power, does the President do this? Isn’t coercing the TARP banks into accepting adverse conditions against their fiduciary responsibilities to their investors and creditors illegal? Certainly Congress could pass laws to allow this, but have they? Who has standing to sue to put a stop to this?
So strange to live through the end of the era of America. We were once the greatest nation the world had ever known. Hard to believe the Great One could destroy us so quickly. RIP the land of the free.
*snip*
Ty Anderson, global head of high-yield strategies at DB Advisors, Deutsche Bank's institutional asset manager, said that the government's involvement "could become a risk factor for investors, as there's a significant difference between what the government thinks is good for the country and how that could affect lenders' contractual rights."
~~~
0 has no qualms about manhandling and overlording every single segment of business and society, including subverting legal and binding contracts. This is truly bizarroworld.
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