Chrysler Moves Toward Bankruptcy: It Sucks to Be Their Creditor

Well it seems that our $7 billion "investment" in Chrysler is going to be destroyed along with much of the wealth of any of their debt holders.

The only major question that remains unresolved is what happens to Chrysler’s lenders, who hold $6.9 billion in company debt. The government’s most recent offer, presented Wednesday, would give the company’s lenders about 22 cents on the dollar, or $1.5 billion, and a 5 percent equity stake in a reorganized Chrysler. Earlier this week, a steering committee of the lenders proposed that they receive 65 cents on the dollar, or $4.5 billion, and a 40 percent equity stake.

However their UAW workers get to hold onto their pensions and health care benefits.

The Treasury has an agreement in principle with the United Automobile Workers union, whose members’ pensions and retiree health care benefits would be protected as a condition of the bankruptcy filing, said these people, who asked for anonymity because they were not authorized to discuss the case.

So basically if you loaned the company money (the taxpayers are in this camp unfortunately) you get 22 cents on the dollar and some stock in the company once it emerges from bankruptcy. But if you are a UAW member you don't have to worry about your pension or your health care expenses because I assume the taxpayer will be footing that bill.

I don't see anything about the bankruptcy voiding those UAW employment contracts so I assume those will be carried forward. So even when they leave bankruptcy they will *still* be at a salary and benefits disadvantage to the Japanese automakers.

I guess the fear of reprisal from the White House is keeping the debt holders from just forcing the company into Chapter 7 and liquidating Chrysler's assets to Fiat at a fire sale. You figure this action would net them more than a measly 22 cents on the dollar.

This whole thing tells you that if the government takes over your company for any reason then get rid of that companies debt immediately or you face getting only 22 cents on the dollar of your money back. Forget debt covenants or who is supposed to get what and when the government dictates terms. I'm sure the Cerberus Capital people must be hopping mad at this turn of events right about now.