General Motors Corp’s (GM.N) plan for a bankruptcy filing involves a quick sale of the company’s healthy assets to a new company initially owned by the U.S. government, a source familiar with the situation said on Tuesday.
The source, who would not be named because he was not cleared to speak with the media, did not specify a purchase price. The new company is expected to honor the claims of secured lenders, possibly in full, according to the source.
The remaining assets of GM would stay in bankruptcy protection to satisfy other outstanding claims.
This sounds suspiciously like they are setting the stage for what Obama did to the debt holders for Chrysler. They were essentially robbed and and their fair share of the company was handed over in large part to the union.
That simply is not true. The government tried to structure a plan for the debt holders that would avoid bankruptcy for Chrysler. The debt holders did not go along with the plan and Chrysler filed bankruptcy. The debt holders have the same rights in bankruptcy as any other creditor in any other bankruptcy.
The UAW will be using its retirement funds to purchase a post bankruptcy interest in Chrysler, but nothing was stolen from the debt holders. They were told, take the deal offered or Chrysler will file bankruptcy, and you can take your chances in the bankruptcy court. The UAW was in the same position, with its retirement benefits. If they did not agree to buy in post bankruptcy their health care benefits would be wiped out.
Only one comment needed — [i]LEYLAND[/i].
So foolish. People who can’t predict what the price of oil will be next week purport to direct a major company. And people who [i]can[/i] predict the price of oil are viewed as the enemy. Absolutely perverse.
We called it a “cram down”. As long as the creditors get no less than they would in liquidation its OK. Painful, but Ok.
When “Engine Charlie” Wilson said, “I thought what was good for the country was good for General Motors and vice versa,” this was [i]not[/i] what he had in mind.
Kyrie eleison, [url=http://pastorzip.blogspot.com]Pastor Zip[/url]
“healthy assets”, hmmm.. that means, GM will hide it’s plants in communist China, Russia, Latin America, and elsewhere, from being subjected to debtors being able to demand they be liquidated to compensate them with, and the “unhealthy assets”, US plants, will be sold off, and we’ll not be able to be paid back for loaning this corrupt corporation a bailout. Obama is promoting the elimination of all US manufacturing, to bring us to our knees and in hock to the rest of the world.
Mitchell, the union members were given four times what the creditors were offered. That is not a fair deal.
[blockquote]That simply is not true. The government tried to structure a plan for the debt holders that would avoid bankruptcy for Chrysler. The debt holders did not go along with the plan and Chrysler filed bankruptcy. The debt holders have the same rights in bankruptcy as any other creditor in any other bankruptcy. [/blockquote]
It is true. Secured, senior creditors were pushed behind unsecured, junior creditors who were politically connected. Then Obama simply handed 55% of Chrysler to the UAW.
If that’s not robbery by government, there’s no such thing.
It’s not that simple. The real question is, what would bondholders have gotten if the government had simply stayed out of the whole affair and let Chrysler collapse? Would the bondholders have gotten anything at all? That’s not clear to me.
Unless you can show that the bondholders are worse off with the government’s action than they would have been without any action, “robbery” is a wild exaggeration.
Secured creditors are normally at the head of the line in bankruptcy proceedings. In most cases assets would be divided between them until either they had been paid in full or had secured the largest portion of the diminished assets. Only after that point do other creditors get any assets, and of course common stock holders typically get wiped out.
[blockquote] Anyway, the Obama administration, judging by its cavalier disregard of contracts between Chrysler and some of the lenders it sought money from, thinks contracts are written on water. The administration proposes that Chrysler’s secured creditors get 28 cents per dollar on the $7 billion owed to them, but that the United Auto Workers union get 43 cents per dollar on its $11 billion in claims — and 55 percent of the company. This, even though the secured creditors’ contracts supposedly guaranteed them better standing than the union.
Among Chrysler’s lenders, some servile banks that are now dependent on the administration for capital infusions tugged their forelocks and agreed. Some hedge funds among Chrysler’s lenders who are not dependent were vilified by the president because they dared to resist his demand that they violate their fiduciary duties to their investors, who include individuals and institutional pension funds.
The Economist says the administration has “ridden roughshod over (creditors’) legitimate claims over the (automobile companies’) assets. … Bankruptcies involve dividing a shrunken pie. But not all claims are equal: some lenders provide cheaper funds to firms in return for a more secure claim over the assets should things go wrong. They rank above other stakeholders, including shareholders and employees. This principle is now being trashed.” Tom Lauria, a lawyer representing hedge fund people trashed by the president as the cause of Chrysler’s bankruptcy, asked that his clients’ names not be published for fear of violence threatened in e-mails to them.[/blockquote]
[url=http://www.realclearpolitics.com/articles/2009/05/14/tincture_of_lawlessness_96482.html]source[/url]
I stand by my earlier statement. These people were basically robbed.
And I stand by my statment you are wrong. The bankruptcy laws are what they are. If any Chrysler creditor does not believe he has received the same as he would have in a complete liquidation, he can file an objection to the plan and the Bankruptcy Court Judge will make the decision. No one was robbed.
I doubt that Mitchell. Obama and his tools are going to subvert the rule of law, create a false/separate entity to hide assets that will be protected from bankruptcy proceedings. Mark my words, this is fraud.
If the government, and that includes the courts, refuse to recognize the fraud, the abuse, then they will ignore it. In Michigan, a church was invaded by the radical gay group, BashBack. Not only were there witnesses to what they did, they admitted it on their website. The county sheriff, and District Attorney and the state Attorney General refused to enforce the law, they lied about a fire alarm being pulled, because they, all democrats, didn’t want to enforce it. Judicial Watch has investigated and are now pursuing the case in the federal courts.
Mari, I can do nothing to quell your parinoia so I will not try, other than to say the very idea the President of the United States and the entire Bankruptcy Court system has the time or any incentive to engage in a conspiracy to defraud the creditors of Chrysler is, well … parinoia.
Excuse me, paranoia.
Mitchell, dismissing opinions such as George Wills’, linked by Ad Orientem’s #10, as “paranoia” displays an unwillingness to deal with what happened. Political pressure was applied and the creditors caved. The government is now so powerful that it can ruin them. Here’s another take, from Holman W. Jenkins, Jr., in today’s [url=http://online.wsj.com/article/SB124277581459836917.html]Wall Street Journal[/url]:[blockquote]Defenders of the Obama administration’s Chrysler bankruptcy finagle misguidedly argue that, if not for taxpayer money, the company’s secured creditors would have gotten as little or less than they did in the imposed settlement.
They miss the point. Anyone can always imagine an outcome more “fair” than the outcome provided by people duly exercising — and the legal process duly upholding — their rights. Fairness in a law-abiding society is due process. In the Chrysler bankruptcy, the administration hijacked the legal forms for a political end that it could have delivered honestly by the government buying Chrysler out of liquidation and handing it to the UAW.[/blockquote]
Significant criticism and opposition should be dealt with, not sneered at. The President has power and he is using it in ways that many observers consider irresponsible or downright unlawful.
Katherine, there is no point in discussing this further and this is my last post. Those who think the President is an evil, awful person will continue to believe what they believe. They will always come up with some theory were by his actions support their quest to expose him as the evil person they perceive him to be. The fact is the creditors did not cave to political pressure. If they had they would have taken the first deal. They did not and Chrysler filed bankruptcy.
The Bankruptcy Court now controls the process. The Company puts forth a Bankruptcy plan. Any creditor can object to this plan, but if he does he must show he will receive less under the plan than he would have in liquidation. This is a legal argument to be decided by judges, not by commentators, who are neither trained in the law nor bankruptcy law. Obama does not control the court. If the creditors feel they have been wronged, their remedy is through the court system. That is what courts are for. Everything else is just some one’s opinion of what is fair, and everybody has one.
As to what the UAW will get post bankruptcy, and what the government is willing to do with the post bankruptcy assets of Chrysler to save thousands of jobs, that has nothing to do with the rights of the creditors in bankruptcy. Obama does not have any control over what assets are part of the bankruptcy. The asset are either part of the bankruptcy or they are not.
If, as you contend, the creditors abandoned their legal position by reason of political pressure, that was their decision. They should have stood their ground. I personally doubt any creditor abandoned a legal position he thought he could win by reason of political pressure. No doubt they would want it to appear that way as part of their negotiation process.
Finally, this proposition the President of the United States will “ruin” someone who does not go along with the Chrysler bankruptcy plan is nothing more than a right wing political talking point, designed to raise money and get votes. Truly believing the President of the United States has the time or inclination to “ruin” someone who disagrees with him in this matter or would engage with the court system in a conspiracy to defraud the creditors of Chrysler is paranoia.
Mitchell, paranoia? Well, please email Bloomberg and CNBC’s networks, because they’ve reported concerns on the subject. That this private entity would be used to protect GM and possibly Chrysler’s foreign assets from bankruptcy proceedings. Geithner and other Obots have advocated the gutting of American plants, belonging to GM, and subsidiaries like Delphi, and those of Chrysler as well. When an uproar originally resulted, they claimed plant closures would only be “temporary”, with increased imports from China only being temporary as well. But both networks have insinuated that this is only more of the same rhetoric that Obama hid behind on the campaign trail, when he lied about renegotiating trade deals. They’ve also speculated that Obama has promised China in deals borrowing from them, that he would push the remaining domestic automobile manufacturing to China.
But then again, I guess anyone that doesn’t drink the koolaid has to be “paranoid”. Just like the World Health Organization that has been reporting for weeks now, that the US dept of health has been under reporting the spread of swine flu, and now we’re learning that more than 100,000 Americans are sick with it, when a few days back, the MSM was only reporting a few hundred.
Again, Mitchell, what jobs are being saved? Cite facts, please.
None are being saved. If Chrysler survives, all manufacturing will be foreign. The same with GM. Ford, if it survives, will be more likely than not, forced to send all manufacturing overseas to compete with that. Has Obama committed to imposing the same sort of tariff (19% at the low end) that China, Europe, the UK, Australia, Japan, South Korea, India and all Latin American companies impose on imported goods, which would level the playing field? No, he refuses.
Of course, he took hundreds of millions from Wall St. and then gave them billions. He took millions illegally, from Indian and Asian nationals, and he’s giving them exactly what they want, no impediments to bleeding the US dry of jobs, and visas and other access. He’s also funneled money to the Indian co-owners of AIG. He’s given billions to foreign banks and investors through TARP. He’s lied about transparency, getting us out of Iraq, and so much more.
oops, I mean Latin American countries.
Thank you mari. You example is quite helpful.
Some of the secured creditors have filed suit to stop the Chrysler deal.[blockquote]Three of Chrysler’s secured creditors are mounting a fresh attempt to thwart the carmaker’s Chapter 11 reorganisation on the grounds that it violates their legal rights and the US government’s authority under the Troubled asset relief programme. The three – all Indiana state pension funds – are among a group of 46 creditors that had appeared to back away this month from efforts to derail the process…The latest objections could galvanise other lenders to renew their challenge.[/blockquote]Source: [url=http://www.ft.com/cms/s/0/b3c8beb8-4564-11de-b6c8-00144feabdc0.html]the Financial Times[/url], not a right-wing conspiracy site, by the way.
See also [url=http://volokh.com/archives/archive_2009_05_17-2009_05_23.shtml#1242842997]this post[/url], citing Bloomberg News reports that lenders may be unwilling to participate in the public/private financing packages the administration will propose for GM and other companies because the administration, in the Chrysler case, put a union pension fund ahead of secured creditors with a higher legal claim. If the secured creditors in the Chrysler case are able to stop the deal, it might prevent the serious collateral damage in the credit markets which may result from bypassing bondholders’ legal rights.
Re #s 21 & 22
Katherine,
Very interesting posts. Thank goodness that some of these people are standing up to the administration’s highway robbery. This could have serious implications for other companies that need to borrow money. Many well off investors are likely to think twice before lending to a company if they think there is a possibility that their legal rights might be trampled by the government in a potential bankruptcy proceeding.
Christ is risen!
John
Katherine,
You are correct, the Financial Times is not a right wing conspiracy site, and the articles you cite are conclusive proof of the point I have been trying to make all along. NO ONE WAS ROBBED.
If the Creditors do not like the plan they can go to court to try and stop it. This is nothing new. Companies in Chapter 11 submit reorganization plans creditors disagree with all the time. It is up to the Creditors to defend themselves. That is how the system works. This is why we have Bankruptcy Courts. Otherwise we would just appoint a liquidator who would make all the decisions. This is not a conspiracy by the Obama Administration to defraud the creditors of Chrysler.
Chrysler is taking the position that absent government intervention, the bond holders would have received nothing or less than they are receiving under the current reorganization plan, and that fact should be taken into consideration in determining what creditors would have receive in liquidation. The creditors are taking the position this is not the case, and further since government intervention occurred without requirement that they give up rights, the fact the goventment made cash infusions designed to help Chrysler stay afloat, should not be taken into consideration in the calculation of the liquidation value of Chrysler on the date of bankruptcy. In short the creditors believe they should be give a portion of the taxpayer money infused into Chrysler to keep it afloat. i.e. There is a disagreement as to what the creditors rights are, and this disagreement will be resolved by a judge who is experienced in bankruptcy law, not commetators.
As I said yesterday, obviously no one really gave up legal rights under political pressure or threat of being “ruined”, otherwise they could not be bringing this action now.
Mitchell, yours is of course the position taken by the administration and its supporters in this action. The creditors assert that Chrysler’s decision to take federal money does not abridge their rights, nor does the fast-track bankruptcy plan which the administration and Chrysler agreed to. They assert that they have a fiduciary duty to their investors, in this case some of them pension funds, to insist on payment from remaining assets in accordance with their contractual rights. The administration has tried to push through a reorganization plan which places some entities (union pension funds) above others having in contract law a higher claim. If this suit is successful it will stop the reorganization plan until contractual rights are addressed. If it fails, the effects on the bond markets will be large. Who will lend money to any corporation in which there is any probability that the federal government will intervene and abrogate contract rights?
What is specifically being objected to is the agreement which violates contracts outside of the bankruptcy process.
Another question beginning to be asked which will also affect the GM situation is how Chrysler selected the dealers who have lost their franchises, and whether these dealerships can be stuck with the inventory which Chrysler in some cases insisted that they take some months ago. I know nothing about what kind of legal agreements auto dealerships and manufacturers have and whether this will also spawn lawsuits.
Obviously both Chrysler and GM had too many dealers, but the question is how to select the winners and losers.
“Mitchell, yours is of course the position taken by the administration and its supporters in this action. The creditors assert that Chrysler’s decision to take federal money does not abridge their rights, nor does the fast-track bankruptcy plan which the administration and Chrysler agreed to.”
No, as with most people who blindly attack anything Obama, you are either intentionally misstating my position or ignoring my position. My position is both sides have a legal argument. They each need to present their case to a judge and let him decide who is right. I am not supporting either side. It is none of my business, but it is not fraud and no one was robbed.
“If this suit is successful it will stop the reorganization plan until contractual rights are addressed. If it fails, the effects on the bond markets will be large. Who will lend money to any corporation in which there is any probability that the federal government will intervene and abrogate contract rights? ”
This is a political argument. You and everyone else has a political opinions. If you were an elected official or government appointee, yours would be more relevant than John Doe’s. I am not engaging in a political debate. This is a legal not a political issue.
“What is specifically being objected to is the agreement which violates contracts outside of the bankruptcy process.”
How do you know any agreement violates contracts outside of the bankruptcy process? That is up to a judge with all the facts to decide.
Okay, Mitchell, now it’s my turn to decline to debate with you further. I have reviewed my posts above. I did not say anyone was “robbed.” I also do not “blindly attack anything Obama.” So long.
Well, it IS a political argument. Obama is taking onto the executive branch powers and abilities far beyond the Constitution’s expressed powers granted to the branch and office of President. (Of course, Obama called the Constitution a ‘fundamentally flawed document” so it’s not surprising he would not follow it in spite of taking an oath to defend it.)
Unfortunately, the Democrats in both houses of Congress agree with such measures and will not dissent until their constituents rise up and threaten to not re-elect them. Some are feeling this pressure with re: Gitmo, but until there is a strong grass-roots outcry, the country will continue its drift towards socialism/fascism.