Home > News > A $2 Billion Chrysler Double-Cross? If So, It’s Virtually Invisible | NewsBusters.org

A $2 Billion Chrysler Double-Cross? If So, It’s Virtually Invisible | NewsBusters.org

September 9, 2009 Leave a comment Go to comments

Here is the gist of the story:

  • Chrysler gets bailout.
  • During bankruptcy, secured lenders get paid first.  This is because the lent money to a financially unsound company and to do this, the law guarantees them first payments.
  • Obama forced banks who took TARP money to forgive most of this debt and accept $0.29 on the dollar.
  • Obama threatened non-TARP lenders to do the same.
  • The extra money saved during liquidation was given to the union, which is an unsecured lender and does not get first payments under the law.
  • Chrysler broken into “Old” and “New”.  Assets transferred to “New” Chrysler, debts remain at “Old” which is reduced to having $2 billion to pay lender.
  • Final step?  Treasury says that loan is due from “Old” Chrysler and takes all the money.

The result is that any secured lender in Chrysler that is not under government control got screwed out of BILLIONS of dollars.  Who did get all the money they were owed?  The unsecure lenders, the Union.

Be very careful if you do any business with the government.  To the Obama administration, you are a liability that can easily be zeroed out.  Ask the car dealers who are still waiting on “Cash-For-Clunkers” payments, but have to pay taxes on it.

 

The Obama administration and its car-czar group appear to be intent on teaching someone who got in their way a brutal lesson.

If there’s another way to interpret what is going on involving the "Old Chrysler," the company’s first-lien secured lenders, and the US Treasury, I want to know what it is.

Readers may recall that in May the government, in what columnist Michael Barone accurately characterized as "an episode of Gangster Government," bullied those same lenders into accepting payment well below that to which they were entitled. In early May, attorney Tom Lauria, representing a group of what he called "non-TARP lenders," told Detroit talk host Frank Beckmann that his group was willing to accept 50% payment of their claims (despite their entitlement under contract law to 100%) to avoid forcing Chrysler to liquidate.

The government had already convinced Chrysler’s first-lien TARP lenders (so named because these lenders are among those forced by Hank Paulson in October 2008 at figurative gunpoint to accept government "investment") to settle for 29%. Treasury and Barack Obama’s car-czar group insisted that the non-TARP lenders do the same, in the interest of giving unsecured creditors, principally the United Auto Workers union’s health care trust (whose rights under contract law were junior to those of the secured lenders) a bigger share, much of which was converted into stock of "new Chrysler." Under what Lauria described to Beckmann as an atmosphere of direct threats and intimidation, most of the holdouts buckled. After unsuccessful court appeals, the deal giving secured lenders $2.0 billion of the $6.9 billion involved went through.

That should have settled the matter; but as you’ll see, it didn’t.

Secured creditors’ claims stayed in the "Old Chrysler," which was stripped of most of its value. The ownership structure of "New Chrysler" that emerged turned out to be the following, according to this September 4 Bloomberg report — U.S. Government — 9.85%; Fiat Motors — 20%; Canadian government — 2.46%; the UAW’s health care trust — 67.69%. Secured creditors have no stake in "New Chrysler."

A $2 Billion Chrysler Double-Cross? If So, It’s Virtually Invisible | NewsBusters.org

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