Tuesday, June 9, 2009

It's Over (?)

The Supreme Court has lifted its stay on the Chrysler transaction. I don't know if that means that the case will not be heard, but it certainly means that the sale will take place.

There may still be avenues that the Indiana Pensioners can pursue, including challenging the transaction under 363(m) - if they feel they can show lack of "good faith" in the negotiation of the transaction. They could also pursue remedies against the collateral agent.

This is good news for Chrysler's employees and suppliers (and advisers - as far as they might have had their testimony challenged), as well as Fiat. The Administration should be pleased as well.

Personally, I believe the compensation is lower than the value of the assets being transferred, but as I pointed out previously, the valuation was not challenged directly in Court. In that posting I pointed out approaches that, I believe, might have been more successful. The Indiana Pensioners were limited in their ability to take those approaches by time (and budget?).

As I have noted previously, I don't believe that the case itself sets precedent. On the other hand, it may encourage the Administration to take further actions against the long term benefit of the economy.

Through their actions, the Administration seems to have forced the lead banks in Chrysler to fail their fiduciary responsibility to their shareholders in order to avoid problems with their preferred shareholder - and regulator. THAT IS TERRIBLE PRECEDENT.

This would seem to clear a path for GM. We'll see how that case proceeds, but it doesn't have the same issues (the secured holders in GM are getting 100 cents on the Dollar - the $6 billion in secured loans was clearly less than the assets they were secured against).

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Aiden said...

The value of the GM assets backed by the secured debt is most likely less than the loan amounts. So I think these lenders are getting a pretty good deal.

The revolving credit facility (4.47 Billion) is secured by a 1st priority lien on certain inventory and receivables, and a pledge of 65% of GM de Mexico, The GM Term loan (1.47 Billion), and is secured by certain machinery and equipment. The US Treasury Loan (20.55 billion) is secured by the stock in domestic and foreign subsidiaries and second priority liens on the previously mentioned assets.

There were no liens on the domestic GM plants, as the 1995 (and previous) bond indenture and the VEBA trust prohibit GM to allow liens (except in limited cases), so these secured loans weren't secured by some of the most important assets: the physical manufacturing plants.

Lawrence D. Loeb said...

Thanks Aiden. That's good info.

The only secureds getting 100% are the $4.5 billion secured revolving credit facility (according to the 10Q $4.5 billion was outstanding - you might have more accurate information), $1.5 billion term loan, and the $125 million secured credit facility. The secured Treasury debt was part of the overall deal related to the equity and debt forgiveness.

I believe that the security backing the $6.125 billion is at least the value of the outstanding loan.

Please let me know if you have any better information.