Chrysler Lender Opposition Collapses

The organized lender opposition to Chrysler’s bankruptcy petition collapsed yesterday, paving the way for a quick restructuring for Chrysler, and a very fast exit from bankruptcy for the new company. The senior secured creditors had taken a legal hit with the bankruptcy court judge refusing to stop the sale of Chrysler assets to the “new Chrysler” controlled by Fiat and the UAW. Two of the larger creditors dropped out of the group, and the small size of the remainder made further legal fighting a very daunting task. It is an impressive win for the Obama Administration, and certainly has to sober up the creditor group over at G.M. The Obama Administration will get the major restructuring of the domestic auto business they have fought for. They now own the problem.

And for those that may remind me that I questioned whether Chrysler could get a bankruptcy done this quickly I say “guilty”. I did not expect the creditor group to be crushed as easily as they were. Wrong again! Below is the press release from one of the Chrysler senior secured lenders.

STAIRWAY CAPITAL MANAGEMENT L.P.
Official Press Release – 9:45am EDT – May 8, 2009

Subject – Chrysler

Stairway Capital Management (“Stairway”) has decided, after countless discussions with its investors, to actively withdraw from the Chrysler bankruptcy process.

We withdraw with the knowledge that we acted in good faith. We have fought for what we believe should be fair and equitable treatment under contract and bankruptcy law – in accordance with what traditionally occurs in a restructuring process. We remain steadfast in our view that there should be significantly more value attained, given a normal course bankruptcy negotiation. The fact simply is, however, our group has become too small to have a voice within the bankruptcy.

As American taxpayers, we appreciate the unprecedented efforts taken by the current Administration to stabilize the economy and the auto sector; but as fiduciaries to our investors we take exception to being compelled, as Chrysler senior secured lenders, to unfairly shoulder the burden relative to various junior creditors.

Finally, we would like to clarify some speculation about Stairway. We are not engaged in the business of underwriting or holding derivative contracts; we do not employ leverage in connection with our investments; and we have never been involved in the subprime mortgage market, at any level or context. Rather, Stairway is just a small private equity firm specializing in special situations and distressed debt opportunities.

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12 Responses to Chrysler Lender Opposition Collapses

  1. Jules Gordon says:

    Your Honor,

    While you revel at the success of the jack boots and their masters at negating a legal contract, I see the evil in it.

    One more step to Socialism and now the heavy hand of the federal government with a boot on our necks. And, your honor, no one cares.

    Jules

    Like

  2. Bill Manzi says:

    Jules,

    I am not sure that this post is “reveling”. I predicted the opposite outcome based on what I saw as the hard to beat legal position of senior secured creditors, and I do have to say that the demise of their claims so quickly has some troubling aspects to it. The larger goal of making sure that Chrysler comes out of bankruptcy in the “pre-packaged” fashion laid out by the Administration trumped contractual rights, and that will create problems down the road for securing that type of financing for corporate America. As I have said previously I do not believe that the “new” Chrysler will be able to exist without continued government subsidy. The Administration is playing for time, hoping that domestic auto demand rises enough to prevent ultimate collapse.

    Bill

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  3. Jules Gordon says:

    Your Honor,

    I am glad you see the problem. I am troubled you see as a mechanical fault rather than a worm hole to the demise of freedom as we used to know it.

    What fear did Obama and his administration bring down on the legitimate investors that they surrendered their legal rights?

    The last time I saw this was a few weeks ago when the Venezuelans volunteered to surrendered their freedom and right to Hugo Shavez.

    Did the Federal Government have the right to bully their way into supplanting commercial law?

    No reason you give justifies what has happened. This is Chrysler’s second time to the well, and if it cannot stand the economic problem, then it should go bankrupt or go down.

    To do otherwise is to disgrace the thousands of lives that have been sacrificed protecting our freedom over our 233 year history and to deny a legacy to our children. Is that worth a few Union jobs?

    Jules

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  4. Bill Manzi says:

    Jules,

    I do believe you have a point, but I certainly do not equate what happened in bankruptcy to Venezuela. I also do not give short shrift to the concept of saving American manufacturing jobs. It is a worthy goal, and the benefits to the country far outweigh the value of a “few thousand union jobs”. Just letting GM and Chrysler go would have plenty of very negative effects on the economy, and the Administration keeping them in play may be one reason why things have stabilized very slightly. In a different economic time the prescription might have been to let them go, but it is risky business either way.

    Bill

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  5. Jules Gordon says:

    Your Honor,
    I do equate the two, but not exactly linearly. I have been watching reaction from the public concerning all the things Obama is doing and the way he’s doing it. I have observed no concern for the sanctity of our unique constitutional democracy. Four entries in the Sound Off section of the tribune recently praised the benefits of socialism. I have never seen that before. Even Fox News business reporters seem unfazed by the heavy handiness of the federal government and its disregard for ‘settled commercial law’. The surrender I’m talking about is by the public: those that have been memorized by Obama, those who like the way the country is going, as well as those who care in the least. These folks and their ambivalence are my Venezuelan equivalence.

    The monster that will be created if the Chrysler re-organization is consummated between the union, Fiat and the federal government will not be successful as the government will become the dominating partner and will drive its political agenda rather than market to meet public demand. This is payback for Union support during the election and not save manufacturing jobs.

    I do not believe letting Chrysler and GM get along on their own will destroy the American automobile industry as there is already a large manufacturing base in the US. Its just that they are located all around the country in such places as Tennessee and South Carolina. These companies are well managed and will fill the need of the American consumer with quality products made by Americans. Ford, meanwhile, will be the remaining American car maker if the other’s fail. Thank goodness they kept away from the Federal Government.

    I hope this makes my view clear. We may disagree but I’m betting on Obama dragging us into Socialism unless we wake up. I don’t see that happening unless something goes wrong.

    Jules

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  6. Fred Mertz says:

    Jules:

    You’re poking at strawmen again: no offense intended, but you’ve considered that the people don’t see the same thing you do, right?

    As for our friends at Stairway, they are a hedge fund: they swooped in and gave Chrysler pennies on the dollar to buy up their distressed debt, they were offered 29 pennies on the dollar for that debt. They didn’t want to take it, like the other senior creditors / major banks did (who properly recognized the situation wouldn’t get better with age).

    So, they bought Chrysler debt and hoped they could strong arm a bankruptcy judge into making their investment more profitable. They miscalculated. Whoops. There is no contract law that I know of being violated here. They simply had the negotiation door shut in their somewhat greedy faces.

    Who knows if they had their own little credit default swap “hedge for a hedge” in play, and they hoped to profit even more, but I’m having a hard time drumming up sympathy for their ilk. They’ll move on down the road, more distressed fish to fry.

    I’m also all for the current generation of American automobile executive to exit stage left: time to put engineering back in charge. If Fiat / UAW can make Chrysler work, more power to ’em.

    PS. Ford probably has about another year of cash to burn through, before they’re in exactly the same position. I hope that new car sales start to pick up again in 3Q …

    -FM

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  7. Jules Gordon says:

    Fred,

    Everything you wrote above doesn’t mean a thing. Chrysler signed a contract and took the money. They had a ligitamate claim against the assets. Your little morality play is another matter. Hell, maybe ‘nice’ companies did not want to touch the car company.

    Obama’s socialist trooper brought down the heavy hand of government and negated the contracts. Tell me why you think investors in the future will take risk when it can be canceled by your government?

    It’s going to be a brave new world, Fred, and there will hell to pay. Double digit Trillion dollar deficits, Inflation, deflation, foreign credit and a push by our global partners to change thing.

    The Economist magazine (a left leaning publication) figures the US will have to borrow 50 cents for every dollar of budget expense.

    Now we will see how well the US government can run an automobile Company (and a country).

    Jules

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  8. Fred Mertz says:

    Jules:

    Ahh, good thing it’s summer. You can be more comfortable in those Flip-Flops …

    Your support for contract law seems to depend on who hold the contract. If it’s the UAW, or a teacher, or a cop, or a firefighter, you’re not so much in favor. But if it’s a moneyed special interest, Katy-bar-the-doors, the sky, she’s a fallin’! What is it you have against hard working Americans?

    Nothing you’ve said addresses anything I said. Where are these negated Stairway contracts? All I’ve seen is that they didn’t want to take the pre-bankruptcy deal because they didn’t think it was profitable enough (I haven’t done the reading to see if the offer would have made their investment profitable overall, however).

    Let me give you another morality play, you seem to like them so much. Say you’ve been a Red Sox fan all your life. You’ve lined up for tickets, perhaps even became a season ticket holder. Through bad times and good, you went to the park, bought the watered down beer, the boiling since April Fenway Franks.

    Now, it’s looking more and more like a championship season. You finish first in the AL East. All the sudden, even though you’re a season ticket holder, you find yourself shut out of playoff games. Guys in suspiciously new hats (and suits), and women (in pink hats, natch), who look a lot better dressed than you could ever be are sitting in *your* seats. They couldn’t name the lineup, don’t know who’s pitching, they’re not even watching the game, but they spend the entire game drinking Merlot and texting on their Blackberrys.

    Are you beginning to wonder about paying for your season tickets next year?

    You wonder where I’m going (so am I at times …), but let’s make you with your season tickets a common stock shareholder. The pink hats and suits represent the hedge fund debt holders.

    The senior debt holders stand in line ahead of the common shareholders when a company is broken down in bankruptcy. They got to that place in line in a way that most if not all common shareholders do not. Their gain is the common shareholder’s loss, since it’s a zero sum game. The pie is only so large.

    Now, the question for you is almost the same one you ask me: why would anyone want to be a common shareholder in such a situation?

    On the brave new world, there will be hell to pay, sure, but it’s not Obama’s doing: we’ve gone through 28 years of financial mismanagement, and there will be consequences and a hangover that hasn’t really started yet. Jobs are being offshored faster than they are being created, tax receipts are down because of job losses, the beat goes on and on. Take a bow: you’ve supported the policies that made it possible all these years! You won!

    Also, this is the first time I’ve heard the Economist is a left leaning publication … I have to remember that one! In relation to what?

    I have to admit: I do enjoy the sparring.

    -FM

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  9. Jules Gordon says:

    Fred, baby;

    Almost fell asleep following your morality play. Next time how about a bathroom break.

    A little shorter response.

    1. GM, Chrysler, and the Cities and towns signed union contracts. The fault for unsustainable operations is theirs. I want my mayor, with respect to the teacher’s union is to start getting give backs (legally).

    So Fred, once again you are wrong.

    The owners of the loans to the car companies have their due. What they got is the heavy hand of your government (not mine)

    Keep in mind if the government can abuse and denigrate those investors, it can put its jack boots on your neck.

    Jules

    Like

  10. Fred Mertz says:

    Jules:

    I’ll try and keep my responses shorter so you can get your naps in. Don’t want you getting all tuckered out on my account!

    Glad you seem to have turned around, and you’re all about negotiations with hard working Americans again. I’ll try and keep you honest in this area.

    The owners of loans to the car companies are going to get their due. They thought they could get a little more than their due, but they found differently. Golly.

    My portfolio got denigrated enough by those financial wizards and hedge fund artists, thanks very much.

    -FM

    Like

  11. Jules Gordon says:

    Well Fred,

    Like the holy one you are picking winners and losers.

    UAW are winners, investors are losers.

    Payback is a bitch. I hope UAW has investment money. They won’t get private investors.

    Jules

    Like

  12. Fred Mertz says:

    Jules:

    No sir. I still think Chrysler will disappear as an independent car maker, and will end up being an American division of Fiat.

    But at least the common shareholders (investors) have a chance. Not the small, insignificant hedge fund you’ve picked. As I noted, the major senior investors took the deal. UAW put up it’s future: their member’s pensions.

    And don’t worry: if it’s profitable, there will be plenty of investors. They see green, not red and blue like you and I.

    -FM

    Like

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