We'll Take Our Chances on the Judge

Given the deal Obama is trying to foist on them, it is no surprise bondholders are ready to take their chances with bankruptcy court.  I makes me sick to see Obama piously calling out these bondholders as if they are somehow corrupt and evil, when in fact their only crime is not to take the hosing Obama is trying to give them:

According the Treasury-GM debt-for-equity swap announced Monday, GM has $27.2 billion in unsecured bonds owned by the public. These are owned by mutual funds, pension funds, hedge funds and retail investors who bought them directly through their brokers. Under Monday's offer, they would exchange their $27.2 billion in bonds for 10% of the stock of the restructured GM. This could amount to less than five cents on the dollar.

The Treasury, which is owed $16.2 billion, would receive 50% of the stock and $8.1 billion in debt -- as much as 87 cents on the dollar. The union's retiree health-care benefit trust would receive half of the $20 billion it is owed in stock, giving it 40% ownership of GM, plus another $10 billion in cash over time. That's worth about 76 cents on the dollar, according to some estimates.

In a genuine Chapter 11 bankruptcy, these three groups of creditors would all be similarly situated -- because all three are, for the most part, unsecured creditors of GM. And yet according to the formula presented Monday, those with the largest claim -- the bondholders -- get the smallest piece of the restructured company by a huge margin.

This seems to be by political design

From the WSJ via Reason


  1. A.Flood:

    .05 on the $1...I don't understand how an "intelligent" person could even present that deal.

  2. A.Flood:

    Have you seen anyone work up the numbers on how Cerberus netted-out on taking Chrysler private? I'd be interesting in seeing that.

  3. Lkoen1:

    I may be confused but it appears that Obama kept Chrysler alive by giving it $16.2 billion. The reason this was given was basically repayment for the $4.5 million that the unions gave to him during his campaign. Obviously the $16.2 billion was to carry Chryler for a while to give the union members and retirees more money. Now Obama is going to hose the bond holders for the billions he gave to the union and retirees under the government structured bankruptcy. Am I missing something? Is this purely bailout for the politically well connected?

  4. gadfly:

    Bankruptcy, my ass! Everybody involved except the UAW gets hosed. All Chapter 11's will work temporarily with the the government (aka taxpayers) providing billions more in DIP financing ($3 billion for a month or two!)plus billions more in taxpayer-financed loans to New Chrysler.

    When the cloud lifts we will have a broken company with automobiles to sell that no one wants to buy, and its board controlled by the UAW, who caused much of today'problems. Say what? The scrap-heap of failure will be even bigger in a couple of years.

    Uhbama ought to put our money into General Growth Properties where its credit-market caused bankruptcy would be lifted and the profitable shopping center giant would actually return our investment.

  5. LottoZheroGravity:

    That' would be very interesting...

  6. ElamBend:

    A smart politician will make sure that Obama 'owns' this deal and make him wear it like a dead albatross around his neck.
    Even this bk is a scam.
    Good on the bond holders, though.

  7. epobirs:

    I wouldn't say nobody wants to buy those cars. When they start blowing them out at fractions of their original intended prices, plenty will get in on that action. At the rate unsold new cars are accumulating here in Southern California some sort of massive liquidation is going to be needed if the factories are ever to be run again. Now if I could just find a newish model that met my needs like my aging Saturn SW2 did for so long.

  8. bigeasy43:

    Lkoen1's comment is right on! I've been preaching this ever since the first bailout was announced. Bailout has nothing to do with saving the car company, it is all about saving and rewarding the UAW. Fiats are junk and did not make it years ago. Now, pair that with a junk Chrysler product and we will have an even bigger problem.
    I am also glad that the Dems have a the 60 senator majority well before the mid-term elections. To paraphrase ElamBend A smart politician will make sure that Harry Reid ‘owns’ the Senate and make him wear it like a dead albatross around his neck.

  9. steven:

    Amazing. These people have businesses to run, and shareholders to account to. Wasn't there a hedge fund operator who was prosecuted and convicted of fraud recently because the instruments he was selling had no actual value?

    Now these people are just trying to ensure the instruments they are selling have some value so they don't get prosecuted for fraud, and that makes them evil and greedy. Sounds to me like no sane person would want any part of a bank or savings institution at all under those conditions. The bond holders should get together and sue the government for unlawful siezure.

    Another thing that bothers me, Fiat's involvement reminds me uncomfortably of a shotgun wedding. They have a lot of performing to do with little authority (20 %) to do it, but I have seen no explanation of what they get in return. How was Fiat forced into this deal?

  10. Allen:

    Obama seems to be behaving to them the same way some complained W43 behaved on certain issues. Funny how much things can change and still stay the same, eh?