Monday, June 08, 2009
So let me get this straight: Unlawful enemy combatants captured in foreign countries and never brought into the United States should have standing to bring their cases in our courts, but Chrysler's bondholders should not? Some reporter with brains and spine -- OK, I know I'm asking for a lot -- ought to ask the president to explain this.
"It's the world you and your ilk made"
By "ilk", CC, are you referring to those who actually WORK for their income...or those who abide by the rule of law?
It really doesn't matter, does it, Mr. Chambers...as both groups are being "ass-bitten" under the Obama junta.
I wrote a piece on Bankruptcy Code 363 here back on Sunday. The 2nd Circuit opinion confirms what I wrote about the 363 process. I said then that I didn't think the Supreme Court would take the case -- I'm not so sure now, but I don't see upside for SCOTUS in taking this case.
1) Chrysler failed months ago. Had it not been for the US stepping in, it would have gone Chapter 7 liquidation, not Chapter 11 reorganization. There would be no Chrysler left today.
I think it was a mistake to "save" Chrysler, as the root problem of the industry has been overcapacity. For years the first priority of the Big Three was to cover their UAW nut, so they operated to maximize revenue -- not profit. So instead of our culling the smallest and weakest from the herd, the US is enabling the UAW to milk this carcass of the transfused cash we're putting in.
Although liquidating Chrysler is the right decision, I don't know that the Supreme Court wants to be the one making it. As a practical matter, if it takes this appeal SCOTUS would be forced to chose between blessing Obama's Ch 11 plan or forcing a Ch 7 liquidation. There is no middle ground. Why take the case at all, if you don't have to? This is a political decision, not a legal one.
2) The first-lien debtholders would have gotten $800 million in a liquidation, but are getting $2 billion from Obama's plan ... so say the financial advisors. If you accept that it meets the legal process requirements under Sec 363, then the priority debtholders aren't getting screwed. No lesser-secured or non-secured creditors are getting anything, as I understand it. The taxpayers are actually throwing them a bone, even as we give the rest of the carcass to the UAW.
3) Bankruptcy courts are courts of equity -- almost anything goes. We crossed this bridge in 1978 with the current federal statute, which was a direct response to the idea of a secured debtor wanting to rip up the railroad's track for scrap metal, Chrysler -- and soon GM -- are stretching Sec 363 a lot -- but we now have two courts that have said that it's allowable under these exigent circumstances. Right now the Second Circuit accepts that Chrysler is a big pile of fish -- saleable today, rotten tomorrow.
These are unusual facts -- as the US is driving this process after having put our money into Chrysler. If Obama was a real investor, he would have negotiated months ago to firmly put the debtholders in the back seat -- back when he put our money into Chrysler.
It doesn't help that the Indiana Funds only hold $42 million out of $6.9 billion in first priority secured claims. Our current bankruptcy courts do rough justice to small hold-outs.
Debt investors will likely look at this -- and GM -- as one-offs. There aren't many other businesses that Obama needs to buy with our money -- he can co-opt the rest. Debt investors have a lengthy list of worries right now -- the Chrysler precedent is far down this list.
4) It's the taxpayers who are getting screwed -- as this is a blatant giveaway to the UAW. Who has standing to argue that? This is very different than TARP money going into banks, as I wrote about here the other day.
The answer is to make Obama own this. No one should buy a Chrysler or GM car, the occasional Corvette allowed. If sales come in 20% lower at Chrysler-GM because of this protest then Obama's experiment blows up. Don't tell me buying Ford isn't patriotic.
Arguing that "this one time is OK" is nonsensical, Link. You can't argue that this one doesn't really matter, and the Chrysler creditors should just bend over and take it because it's "only this once". I guess you think the rest of us can rely on the security of a stable legal system with due regard for property rights? That's just BS. This is what state power looks like when it's first directed against private citizens. It goes downhill from here.
The creditors are the wrong group to be the critics of Obama on this, both legally and politically. So far, a bankruptcy judge and a three judge appellate panel don't see it as a creditors rights issue -- and I tend to agree. But don't misunderstand, I'm not arguing that Chrysler is a good thing, quite the contrary. What I am saying is that it really stretches 363, but that it may be legal.
Your premise is that the creditors are being financially disadvantaged because they're not getting as good a deal in Obama's Chapter 11 as the UAW is -- which is true. But they are getting a better deal than they would in a Chapter 7 liquidation, which is the only alternative -- and all they're legally entitled to. The creditors are not bending over and taking it -- the taxpayer is.
Obama is giving a big gift to the UAW, and throwing the creditors a small bone. The creditors are arguing that they should get an even bigger bone, at taxpayer expense. We should be outraged as taxpayers is my point -- not because the creditors are getting screwed.
Unless SCOTUS weighs in, all Chrysler stands for as a legal precedent is that a court won't require the normal Chapter 11 reorganization plan if the only choices are (A) liquidate the company, or (B) sell it fast in a deal where first priority creditors get 2x what they would in a liquidation. The only other time we're likely to see this again -- ever -- is GM.
This is because you never normally have an outside investor come in that wants to give gifts to the constituents of a bankrupt company.
Normally, if a company is worth saving it can get DIP financing -- it then has the time to work through a reorganization plan. If revenues exceed marginal costs, this works. If a company's revenues don't cover marginal costs -- it will never get DIP financing ... it's a sinkhole not worth saving ... it goes to Chapter 7 liquidation. Chrysler and GM are so bad, that any normal lender would fear the latter.
If the US hadn't stepped in, the creditors of GM and Chrysler would be getting bupkis. Obama's bailouts makes them a bit better off. Politically, better to focus on the gift Obama gave to the UAW and Fiat. If I worked for Ford in Detroit or Toyota in Tennessee, I'd be really pissed.
Politically, people won't understand creditor's rights. Better to hang "Government Motors" around Obama's neck.
Funny, CC, but I thought that you and TH were pretty much from the same ilk.
Bottom line: SCOTUS must interpret the law here, both procedurally (as to standing) and substantively (as to what can be accomplished in the Chrysler bankruptcy within the law). If the Indiana bondholders have standing and if the proposed plan of reorganization doesn't pass muster under the bankruptcy laws, that plan cannot be confirmed. Practically speaking, creditors challenge plans all the time, and the parties get together and work on a plan that most, if not all, parties agree to. We are, after all, a government of laws and not of one man (Roosevelt had noble ideas and learned that lesson too).
The case is in the right hands -- let's let the Supreme Court rule on how the Chrysler bankruptcy should proceed.
"But they are getting a better deal than they would in a Chapter 7 liquidation.
Since you want to let the government decide what financial decisions a private investor ought to make, taking away the right for that investor to decide for themselves, then you are making the same decision Hugo Chavez would have you make. The truth is, you have no earthly idea if your opinion is correct, and the creditors who think differently than you do will thank you to buy their debt at par and put your money where your nonsense valuation opinions are. Secured creditors have the right to decide for themselves what course to take, and they base it on their valuation of the underlying assets as is their right in settled law. Instead of this nonsense, you might have argued that the bondholders were simply trying to extract a better deal from a desperate Treasury Department, as by the way is also their right to do given the poor deal the Treasury negotiated for itself going into this mess, and that might make a bit more sense, but even then I think the rights of senior, secured creditors should have dictated a very different deal dynamic. Just my opinion.
"But they are getting a better deal than they would in a Chapter 7 liquidation.
Read the Second Circuit opinion -- I don't make this stuff up -- Greenhill & Co was hired to do a valuation analysis. They're not a schlocky firm, They say the priority debt is getting $2 billion of value in Obama's deal but would only get $800 million in liquidation. QED.
"Secured creditors have the right to decide for themselves what course to take, and they base it on their valuation of the underlying assets as is their right in settled law."
According to the Second Circuit, not under the Federal Bankruptcy Statute of 1978 they don't ... I didn't make that up either. Obama's plan is a well-lawyered stratagem to cut the creditors out of a vote. A professional distressed debt buyer would say this is typical Chapter 11 brinksmanship and all part of the game.
There are other anomalies in bankruptcy. My understanding is that Cindy McCain would do better in bankruptcy with her many houses than I would with my one -- unless I had the foresight to have bought mine in Florida. Little people fare the worst in bankruptcy, although we have done away with debtor's prisons.
This and GM are sui generis -- if there were real value in Chrysler the creditors could make a topping bid which included the full value of their debt ... but they're not. They don't want to own Chrysler. No one does. Even the UAW has said it wants to sell off Obama's gift.
A few weeks ago I worried that stretching Section 363 to cover the sale of a whole company was a worrisome precedent -- I really don't think we'll see it again after GM.
Once again, cry for the taxpayer ... not the creditors.
Give me a break: Greenhill got paid to produce an opinion in support of the deal. I used to write opinions like this for a living. That foolishness aside you keep evading the point, which is that you want the government to seize the right of the investor to decide what to do with their investment. You think it's fine, because the government knows better than the investor what's good for them. Opinions like this one make me sad for the future, and I don't cry for the taxpayer, I cry for the loss of liberty. Next thing you know, we'll have the government telling us to buckle our seatbelts, give up our real estate so that connected fools can build diseconomic parking garages in the name of redevelopment, to not eat red meat, only marry genetically compatable women and abort defective children, all in the name of reducing health care costs.
But, hey, the government must know best.
I used to write these opinions too. You can put your finger on the scale, but going from $800 million to $2.0 billion is a pretty wide spread. Should Obama have given the creditors even more of our tax dollars -- would that make you happy?
Creditors would have gotten bupkis, without Obama's intervention. At bottom, creditors are arguing that because Obama was giving away so much to the UAW that they too were entitled to an even bigger handout. To me the issue was that the UAW was getting anything at all -- not that creditors were getting too little. Creditors were the wrong group to make the taxpayer's argument in Chrysler, both legally and politically.
When a big company goes bankrupt, a lot of investor rights get left at the door. That's the way we've been doing it for 30 years. Obama didn't invent that.
On purely financial terms, Chrysler and GM are so bad that they aren't worth saving. On purely financial terms, creditors should be getting very little here. It's just Chapter 11 brinksmanship that's going on.
There's lots to fight Obama on -- the rights of Chrysler creditors isn't a good one. Three different courts saw it the same way.
The right answer -- we should all buy Ford.