Excellent piece on the lenders who stood up against the government stealing their money
Hooray for Chrysler’s Rogue Creditors
May 01, 2009 10:46 AM ET | Rick Newman | Permanent Link | Print
One rap against President Obama is that he never gets mad. The Chrysler bankruptcy may have proven otherwise.
When Obama singled out “investment firms and hedge funds” that wouldn’t agree to restructure Chrysler’s debt on the government’s terms, his scorn was palpable. “I don’t stand with them,” he said pointedly. “I don't stand with those who held out when everybody else is making sacrifices.”
[See why Chrysler still might not survive.]
The president was referring to a group of financial firms that hold a big chunk of Chrysler’s $6.9 billion in debt. Some of Chrysler’s creditors agreed to take 33 cents on the dollar and let Chrsyler off the hook. But other creditors said no to that deal, gambling that they’d get more from a bankruptcy judge. They may be right: Fitch Ratings estimates that bondholders could get 50 to 70 percent of their money back if Chrysler liquidates, and a bit less if Chrysler emerges as a going concern. In either case, that’s a better outcome for creditors than the 33 percent return they would have gotten under the government’s offer.
On $1 billion in debt, the difference between a 33 percent and a 50 percent redemption is $170 million. On the whole $6.9 billion in debt, the difference would be almost $2 billion. Sure, some of that accrues to rich investors who can probably afford the haircut, but much of the money is invested on behalf of pension funds, mutual funds, and the retirement accounts of ordinary Americans. Should they really accept a deeper loss because the government asked them to? . . . .