Chrysler Bondholders Play Chicken with Obama
Original story by Robert Farago
Chrysler bondholders have officially rejected the Presidential Task Force on Automobiles’ (PTFOA) “offer” to exchange 85 percent of their secured debt ($6.9B) for a stake in a reconstituted ChyrCo.
The Wall Street Journal reports that Chrysler’s April 30 Treasury deadline to seal an alliance with Italy’s Fiat SpA also requires concessions from lenders, as well as from the United Auto Workers union.
Chrysler owes lenders (including Citigroup Inc. and J.P. Morgan Chase & Co.) about $6.9 billion, but President Obama’s auto team had requested that the banks cut that to $1 billion, while gaining no equity stake in a restructured Chrysler.
In return, the bondholders’ counter-offered that the lenders cut Chrysler’s first-lien debt by $2.4 billion in exchange for a 40 percent equity stake and a Chrysler board seat.
Oh, and they want Fiat to put up a billion dollars. (Never mind that Fiat doesn’t have it.)
Remember: this is secured debt. If/when Chrysler is sold off in pieces, the bondholders would recoup about 65 cents on a dollar. (Or so they think.)
Lenders also question the logic of having Chrysler pair up with Fiat. The Italian company, they said, would bring “negative synergies for the first 3 years” and would enter the alliance with “limited downside for a deal of this size.” Moreover, they said it could result in a “wealth transfer from the U.S. taxpayer to a foreign company of potentially $10 billion or more.”
Two Cents…
Chrysler’s UAW employees have until 4/27 to accept their buyouts.
Does the federal government have the guts to stop writing checks to Chrysler, thereby being directly responsible for putting all those UAW members on the street?
Will the government end up lending FIAT the $1 Billion to secure the Chrysler partnership?
Chrysler doesn’t “own” much on paper so, what kind of tangibles do the banks have access to anyway?
With AIG underwriting the default insurance, did it occur to the banks to seek their own insurance in the event of default/C7? Seems that the government end up flipping the bill either way.
