Academic

Chrysler bankruptcy

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

Here are a few thoughts of mine.

It seems a little disingenuous for the administration to cast the Chrysler bondholder holdouts as knaves.  Unlike the big banks that received billions in TARP funds and have gone along with the administration's restructure plan, these smaller bondholders are not beholden to the government for favors.  They're secured and deserve the priority they bargained for.  One possible solution in bankruptcy--separately classify the TARP bondholders from the holdouts for purposes of voting and payment in reorganization, since they have different interests (in bankruptcy, only "substantially similar" claims may be placed in the same class).  Give the TARP bondholders the haircut they've agreed to, and pay the holdouts commensurate with their secured position.  My understanding is that the holdouts only amount to about 30% of the $6.9 BB of the bond debt--or just over $2 BB--and they've already been offered $0.29 on the dollar, so with separate classification and payment, maybe the parties aren't that far apart.

OTOH, it looks like Chrysler may try to sell the assets out from under the holdout bondholders without ever confirming a plan.  Which is a whole other can of worms.

Full post as published by Conglomerate on May 01, 2009 (boomark / email).