Short Secured, Long Unsecured Claims

by Mr Juggles

Detroit News Editorial on Chrysler case:

Under the government-arranged settlement, Chrysler’s bondholders will receive $2 billion for their $6.9 billion in debt. That amounts to about 29 cents on the dollar. Nine-tenths of the creditors agreed to the deal, although most of them are banks and investment funds that are borrowers from the federal government.

Three Indiana pension funds, whose debt holdings amount to $42 million, contended that as secured lenders they should have received better treatment than such unsecured creditors as the United Auto Workers retiree health care trust fund. The UAW fund will receive 55 percent of the equity in a reorganized Chrysler while Fiat, which put up no money, will receive a 20 percent share as well as effective control of a new Fiat-Chrysler alliance.

Legal commentators have said the union received a better deal than is usual in a bankruptcy.

[The] decision on whether to accept the deal should have rested with the bondholders — not presented as a government ultimatum. Protecting the interests of secured creditors is the point of bankruptcy law

Au contraire! That WAS the point of bankruptcy law. Did you get that memo? Now bankruptcy is a place where secured creditors get screwed for political purposes and unsecured claims walk away with the keys to the company, while people ahead of them in line get a quarter for bothering to front the company money when it was needed most. In this case, the unsecured claims forced the filing by being so onerous and non-market, not unlike the market participants who took the most housing risk from 2004-2007, caused the US to file for bankruptcy protection (coming to a theater near you in 2021) and now are looking for handouts, so they can throw other people’s good money after their own bad. While it may be poetic that the UAW will own this slop of shit that makes cars that no one wants to buy, it’s also not fair.

What does this mean? I urge you to consider never lending any secured money to a troubled company, especially one in a political industry that employs a lot of people. It doesn’t matter what kind of collateral you have, or what kind of lien, or whether it’s Debtor-of-Possession or super ultra 1st priority magic loans, you’re risking your patient’s life investors’ money.

Recommendation: Short secured, long unsecured politically supported claims. Short existing bankruptcy law.

Related Reseach:

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  1. jd
    June 10th, 2009 | 9:15 am

    …and that’s “empathy” for you.

  2. June 10th, 2009 | 9:21 am

    …and that’s “nonsensical” from you, fake JD.

  3. MGW
    June 10th, 2009 | 9:52 am

    I, for one, am more than willing to pay my share of the $20bn or so that the government has given Chrysler (less than $100 per person in the country) in order to support the comedy that will unfold with the UAW owning the majority of the company.

    Never before in America has such a comedic situation been set up that will give the UAW and Michael Moore a chance to demonstrate the benefits of their plans for running a car company.

  4. June 10th, 2009 | 10:21 am

    All board meetings scored by the Benny Hill music?

  5. June 10th, 2009 | 11:14 am

    I’m with MGW.

    Just wait until the UAW realizes that they’re fuxored either way: They screw the retirees or they screw the current/future workers, but either way, they’re gonna be screwing their union brothers/fathers/I think you get the point.

  6. June 10th, 2009 | 11:17 am

    That’s where you are wrong. They will realize this and find a way to pass the screw to US taxpayers when the time is right. It’s inevitable.

  7. Bean Counter
    June 10th, 2009 | 11:55 am

    When they decide to screw us the taxpayers, can we insist that they at least use protection?

  8. jd
    June 10th, 2009 | 12:17 pm

    sorry, new poster here.

    why am i “fake” jd?

  9. rollformer
    June 10th, 2009 | 12:33 pm

    Gentlemen, this abrogation of contract law is quite helpful to our government. If we as investors are too fearful to invest in corporate bonds, where might we put our funds? What might this do to the yields on these securities?

  10. rollformer
    June 10th, 2009 | 12:36 pm

    I meant bankruptcy law, but they’ll probably do a number on contract law as well, by the time they are done with it.

  11. June 10th, 2009 | 12:44 pm

    “why am i “fake” jd?”

    We have a posted named “Johnny Debacle” aka “JD”. I was just taking the piss out of you.

  12. jd
    June 10th, 2009 | 12:56 pm

    yeah, i realized the “Johnny Debacle” significance
    about 5 minutes after posting.

    need afternoon coffee.

  13. June 10th, 2009 | 2:04 pm

    I feel your pain.

  14. HAM05
    June 10th, 2009 | 2:31 pm

    juggles, its clear by the history of your prose that you don’t feel feelings

  15. Frederick A. Henderson
    June 10th, 2009 | 5:55 pm

    Mr. Juggles-

    I would like to thank LoS for the Google AdWords traffic your site has sent to our new website (see banner ad above). Going forward, would you consider receiving your click-through payment in the form of “New GM” secured debentures, as opposed to cold, hard american dollars?

    Frederick (call me “Fred” or “Rick” or “e”) Henderson

  16. MGW
    June 11th, 2009 | 9:50 am

    “New GM” secured debentures are roughly convertible into “New US” dollars on a 1 for 1 basis. Once inflation his, both are roughly worth one “New Piece of Paper.”

  17. Pleb
    June 11th, 2009 | 11:22 am

    I’ve looked at the legal aspects of the GM reorg and I find it’s perfectly legal… per Zimbabweprudence. That’s the form of juris prudence that supports Zimbabwenomics. I have reasonable certainty that it is based on Clausewitzean economic principles, to wit: Superior firepower at the point of attack is *money,* bro.

    On the upside, as one of the people who makes good coin and is now officially and Enemy of the People, I’m really enjoying life as an Enemy of the People. It’s wonderfully liberating. For instance, I kicked a homeless guy on the way into the office yesterday. I think he used to work at Cadwalader in their Mergers & Acquisitions group. Bummer dude… shoulda gone into labor law.