Thursday, April 30, 2009
TigerHawk on credit markets
To save everyone the trouble of clicking through, here is the text of an email from this blog's favorite self-described corporate tool to Glenn Reynolds at Instapundit:
"Yes, the situation with the auto workers is a mess and the small bondholders are getting whacked, but it is far from clear that the example of the GM situation will hurt credit markets. First, the credit markets have actually been improving in recent weeks (while the automakers have been understood as zombies), with more money flowing in to mutual funds that invest in bonds, yields on corporate bonds (among other instruments) slowly declining (meaning bond prices are going up), and, finally, a few original issuance 'high-yield' bond deals actually getting done. So I am not sure the auto deal is in fact causing the credit markets to go 'John Galt,' for which we should all be grateful. Second, in general the Paulson/Geithner era has been extremely solicitous of bondholders and other creditors. The equity has gotten crushed, the executives have been taken to the woodshed, but the government has been all about protecting the creditors, even to the point of serious moral hazard (thinking primarily of the AIG counterparties, who are the main and possibly only beneficiaries of the AIG 'bailout')."
CWCID: Instapundit, and, well, TigerHawk.
6 Comments:
By 
Cardinalpark, at
Thu Apr 30, 03:07:00 PM:
As long as contracts / associated contract rights and protections aren't being abrogated by government fiat, restructuring this piece of dogmeat in or out of court is a good thing. And given that the Chrysler situation is actually heading to court, I am inclined to believe everyone is playing by the existing rules as to votes, etc.
One bit that's quite amusing, btw, in light of some of Obama's anti-hedge fund comments -- several members of the Obama auto team are former hedge fund investors with intimate investor understanding of the sector.
We'll leave it to readers to figure out who some of those folks might be. Needless to say, they are working 7x24 and travelling commercial. For their country.
We wish them well.
By Escort81, at
Thu Apr 30, 03:38:00 PM:
CP - It's almost like "battered wife syndrome" for some on the POTUS's executive team and some of his supporters. They know that they will get verbally whacked, at least indirectly, and keep coming back for more. Or maybe they think that they have converted from the Dark Side.
By 
, at
Fri May 01, 09:56:00 AM:
Does anyone know if the UAW pension obligation is being swapped for the equity, or are they retaining pension rights in the deal? In other words, they are getting equity but are they taking equity risk? Or, alternatively, if the company goes under a year from now and their equity is worthless, will the UAW still have the ability to go to the PBGC for redress?
To me, that's the nut of this deal: if Obama has persuaded the UAW to let the taxpayers off the hook on the pension issue in return for the government investing this bridge money, then it's probably a fair bet. If they aren't, then it's a manifestly stupid investment of taxpayer money and the secured bondholders ought to do us all a favor and fire an involuntary petition right between the eyes of this deal.
By , at
Fri May 01, 05:11:00 PM:
The credit markets may seem to be improving, or at least less terrible as spreads decline and liquidity starts coming back, but the lot of creditors being subjected to political demonization must soon start affecting those markets. Here's object lesson one (what a frigging mess!):
"A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout," Obama said.
By , at
Fri May 01, 05:12:00 PM:
One more point: Imagine that! They want "a tax-payer funded bailout"!
By , at
Fri May 01, 06:59:00 PM:
Hooray for Chrysler's Rogue Creditors!
Absolutely right, and hooray indeed. Even though Obama couldn't swing the cram down he wanted, he expects to intimidate the bankruptcy judge into muscling the senior secured into taking a big haircut. That'll be tougher than he thinks-- bankruptcy judges are tough nuts and have specific roles to protect senior creditors when junior creditors (like the government and the UAW) start to whine. The markets will be watching this case carefully, and only then will we really know what Obama thinks of creditor rights.
