Here is an interesting article from The Wall Street Journal.
The paragraph that struck me is:
So the president, the UAW and Fiat look set to win? Not completely. The administration risks distorting America's capital markets: If the current plan is pushed through, then good luck to any unionized firm trying to raise secured debt on decent terms in the future. As for the UAW, making a success of the new Chrysler will likely require taking the sort of painful decisions unions are programmed to resist.
I've included the text below, since I don't know how long the link will work, but I encourage you to go to the wsj.com site to read this and other interesting articles.
MAY 1, 2009
Surveying Chrysler as Wheels Fall Off
By LIAM DENNING
Strange things happen on planet Chrysler.
A car company bought for $38 billion in 1998 gets unloaded to another buyer at a cost of about $1 billion almost a decade later. Two years after that, another company, Italy's Fiat this time, stands ready to take a 20% stake plus options for more in exchange for know-how, but no cash. Employees plan on taking a majority stake. Oh, and secured lenders to Chrysler get offered 33 cents on the dollar to go away.
Dissident creditors are justified in holding out against this two-thirds haircut. After all, the United Auto Workers union is set to get an implied 50 cents on the dollar -- plus a 55% stake in the new company. The large banks that hold the majority of Chrysler's $6.9 billion of secured debt and negotiated the terms on offer are recipients of aid from a government desperate for a quick fix. Not for nothing do the dissident creditors call themselves Chrysler's "Non-TARP Lenders."
Bankruptcy court, however, is an unpredictable place, and the dissident group shows signs of unraveling already: Late Thursday, prominent hold-out Perella Weinberg Partners conceded.
In court, Chrysler would likely argue its brands are deteriorating by the day. It would hope to press the judge to force the existing deal in the best interests of preserving the business, similar to the quick sale of Lehman Brothers' North American businesses to Barclays in September.
Chrysler mightn't be as much of a melting ice cube as Lehman. But drivers' faith in Chrysler is arguably fragile already. Concerns over damage to the wider automotive supply chain might also color the judge's thinking. Six parts suppliers were placed on watch by Standard & Poor's following Chrysler's bankruptcy filing Thursday.
Despite their sound argument, therefore, those Non-TARP Lenders left face formidable obstacles. Bondholders at General Motors, offered awful terms earlier this week, should be nervous.
So the president, the UAW and Fiat look set to win? Not completely. The administration risks distorting America's capital markets: If the current plan is pushed through, then good luck to any unionized firm trying to raise secured debt on decent terms in the future. As for the UAW, making a success of the new Chrysler will likely require taking the sort of painful decisions unions are programmed to resist.
That leaves Fiat. With no cash upfront, the car maker has limited its potential losses. But it isn't hard to envision a scenario in a few years where Chrysler is still struggling and stretching Fiat's management, while the Italian company takes flak from U.S. politicians and union members. Daimler and Cerberus Capital Management can testify that strange things happen when you land on planet Chrysler.
Write to Liam Denning at liam.denning@wsj.com Sphere: Related Content
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