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April 30, 2009

Chrysler's Senior Creditors Speak Out (Updated)

Once again, the Obama administration's rhetoric and finger pointing doesn't quite pass the truth test, and the holdout lenders have struck back at comments from the unnamed administration official this morning that blamed them for causing the imminent bankruptcy.

As Stephen Spruiell, writing at NRO, sums up the situation - Chrysler's smaller creditors - the ones that didn't take TARP money - have issued a statement complaining that they were shut out of negotiations with the Obama administration, which tried to screw them over in order to secure a better deal for the United Autoworkers Union.

Here's an excerpt from the statement:

What created this much-publicized impasse? Under long recognized legal and business principles, junior creditors are ordinarily not entitled to anything until senior secured creditors like our investors are repaid in full. Nevertheless, to facilitate Chrysler's rehabilitation, we offered to take a 40% haircut even though some groups lower down in the legal priority chain in Chrysler debt were being given recoveries of up to 50% or more and being allowed to take out billions of dollars. In contrast, over at General Motors, senior secured lenders are being left unimpaired with 100% recoveries, while even GM's unsecured bondholders are receiving a far better recovery than we are as Chrysler's first lien secured lenders.

Our offer has been flatly rejected or ignored. The fact is, in this process and in its earnest effort to ensure the survival of Chrysler and the well being of the company's employees, the government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades.

We have a fiduciary responsibility to all those teachers, pensioners, retirees and others who have entrusted their money to us. We are legally bound to protect their interests. Much as we empathize with Chrysler's other stakeholders, the capital is just not ours to contribute to their cause by accepting a deal that is outside the well established legal framework and cannot be rationalized as being commercially reasonable.

Posted by Hyscience at April 30, 2009 2:34 PM

• Chrysler's Senior Creditors Speak Out (Updated) - Apr 30, 2009