New Opposition to Chrysler's Restructure Plan

This morning's Wall Street Journal reports that there is new opposition to Chrysler's restructuring plan.

'The funds are unhappy the government put together a restructuring that will give secured creditors only 29 cents on the dollar. Chrysler unsecured creditors ranking below them -- namely the United Auto Workers union -- will recover more.

Judge Arthur Gonzalez of the U.S. Bankruptcy Court in Manhattan on Wednesday denied lenders' request to delay the coming sale of Chrysler assets to a new company backed by the U.S. But the funds did secure a separate hearing in U.S. District Court in Manhattan next week, where they plan to challenge the constitutionality and legality of government involvement in Chrysler.'

It appeared that Barack Obama had beaten back the senior creditors and gotten them all to back down, to accept less so that the United Auto Workers could get more.  Last month Obama demonized the speculators.

'Obama said that all of Chrysler's major stakeholders had made sacrifices -- the United Auto Workers had agreed to major cuts, Chrysler's management had been "positive and constructive," and Chrysler's biggest lenders, led by J. P. Morgan, "had agreed to reduce their debt to less than one-third of their obligations."

But then he dropped the hammer:

But while many stakeholders made sacrifices, some did not. In particular, a group of investment firms and hedge funds that hoped to hold out for a taxpayer-funded bailout.

I don't stand with them. I stand with Chrysler's employees, management and suppliers.

I don't with stand with those who held out when everybody else made sacrifices.

The holdouts, Obama also said, were "a small group of speculators" who are "endangering Chrysler's future.'

Lefty pundits agreed.

'But the banksters are eagerly, shamelessly, and openly harvesting their pound of flesh from financially stressed average taxpayers, and setting off a chain reaction in the auto industry which has the very real risk of creating even larger scale unemployment than the economy already faces. It's reckless, utterly irresponsible, over-the-top greed.'

And who are the utterly irresponsible, the over-the-top greedy?

'The opposition was led by the Indiana State Teachers Retirement Fund, the Indiana State Police Pension Trust and the Indiana Major Moves Construction Fund, which together own about $42.5 million of Chrysler's $6.9 billion in secured debt, according to the funds' lawyer.'

[...]

"As fiduciaries, we can't allow our retired police officers and teachers to be ripped off by the federal government," Indiana State Treasurer Richard Mourdock said Wednesday.

Mr. Mourdock, a Republican who oversees one of the funds and is trustee for another, said Indiana's state funds "suffered losses when the Obama administration overturned more than 100 years of established law by redefining 'secured creditors' to mean something less."

In court filings Tuesday night, the Indiana funds alleged the Treasury Department's actions at Chrysler were unconstitutional, violating Fifth Amendment prohibition against government seizure of private property. The funds also alleged "misuse" of the government's authority under the Troubled Asset Relief Program, noting that TARP gave Treasury authority to aid financial institutions, and not industrial companies such as Chrysler.'

According to the Journal the Indiana funds are willing to take 50 cents on the dollar, so I'd be willing to bet the Obama administration will settle rather than risk a successful challenge to their taking.

Comments

[Ol' BC]

Here in Indiana most of us respect the rule of law and work to change or repeal bad laws. This is a blatant disregard by the government and Indiana's employees and their pension funds who invested somewhat "conservatively" are getting shafted. Secured creditors postion in these matters has been established for over a century. If this suit is not won, the fix is obviously in. So much for the courts "upholding our rights."

[Tom Bowler]

If this suit is not won, the fix is obviously in. So much for the courts "upholding our rights."

I expect a settlement. The Obama administration might try to beat the pension funds down below a half a buck on the dollar but in the end I think they'll settle. And that's how the fix will work. The court won't have to rule on it. My non-lawyerly prediction.