Chrysler Vultures May Win Too

In real estate, the speculators with the little building in the middle of the block who refuse to sell to the developers are "block busters" or "spoilers". Some could label them as extortionists trying to shake loose a little extra for themselves.

Today in the Presidential press conference, the "spoilers" got their come-uppance in the Chrysler brinkmanship talks and deserved to. President Obama said some "hedge funds" were holding out to double their bet which he believed was unconscionable given the sacrifice of other parties from unionized workers to American and Canadian taxpayers and others.

He's right.

His hedge-fund bashing plays well in the standing-room-only section, but will not matter a darn when it comes to Chapter 11 bankruptcy. Obama is a lawyer first and foremost, and he knows as well as anyone that these "speculators" may get more than others wanted to give them before a bankruptcy court judge. After all, they do have rights to not sell if they choose to. Their argument is that they bought Chrysler's debt which was not subordinate.

Best guess is that the judge will chop their wishes significantly, but they may still end up ahead of the game -- something that the unions, Obama's government and the public could not stomach.

What I found most interesting about this press conference today was that Obama talked tough then walked away without taking any questions. No Mr. Nice Guy. No cajolling. It's all before the courts and that's the way it should be because he, as a lawyer, knows that's the only solution with "spoilers" and the court judgment will also let his Auto Task Force completely off the hook (if the speculators prosper) because it was a matter decided by the rule of law.

Also interesting, however, was the fact that General Motors' has been given a backdoor position in Chrysler as its financial arm through GMAC. Chrysler's counterpart is so badly under water that it won't be revived, said the President, but GM -- given more time to come up with its plan -- emerges as a new stakeholder without putting up a dime.

So here's what is next:

-- Chrysler's hedge funds will make money on the deal because the courts will award something.

-- Fiat will pull off the biggest coup among carmakers anywhere because it will have instant entry into the world's biggest car market without risking capital because Chrysler's governmental backstop makes it a "treasury" quality bet.

-- The UAW and CAW will merge because they should.

-- Autoworkers will finally become capitalists.

-- And GM will eventually take out Fiat or merge with it too.

But stay tuned.

See Diane Francis' blog

Comments

[nomoredead]

With the union owning 55%, when business is better, they should decide how much to pay the Hedge Funds. I would love to see that.

[ramblingjohnny]

What a surprise Hedge Funds are in business to make money!! Anybody shock by that one?

[ejhickey]

Ms Francis said " Obama is a lawyer first and foremost," His legal experience is limited to office practice. He never tried a case as an attorney nor did he take a deposition­.. He never represented anyone in Bankruptcy court or in any other state or federal court. It is one thing to read about cases and another thing to have actually appeared in court before a judge and/ or jury . Bankruptcy court at this level is more complicated than people realize and this may not be a tow month process. Additionally the hedge fund creditors and other creditors have the right to a hearing and to appeal the results of any decision.

[drymartini1]

The hedge funds should have hold out and they did. Why should the accept measly govt offer if they has bought CDS on Chrysler or GM debt. Until a credit event is triggered, CDS writer wont pay them the recoverable amount on the debt. so they did the right thing.

Most of the debt is secured. Chrysler should have sold a brand or two to pay off the creditors. geez.

[mbacpademo]

So let's see...Hedg­e fund buys cds from Morgan Stanley who's underwriter is, wait for it...AIG.
And the taxpayer is back to bailing out hedge funds. AIG should default and file Chapter 11.

[dan-o]

Remember we are a nation of laws and Bankruptcy is well defined in how assets are allocated in paying off debtholders. If the government starts to ignore contract law then nothing is safe.

[000Jade000]

Shouldn't this be another indicator that involving ourselves in "public-private partnerships" with private equity funds and hedge funds is NOT in our interests?

[research]

Hedge funds stand to make more money from TARP money via AIG Credit Default Swaps, they took out to protect their Bonds, than the current value of the bonds themselves.

Really.

http://www.businessweek.com/lifestyle/content/apr2009/bw20090424_731357.htm?chan=top+news_top+news+index+-+temp_top+story

our money used to destroy main street

so Banksters can gamble.

The link is about GM, but you be sure Chrysler is getting the same treatment from Hedge gamblers.

[notAMoron]

I think that if they take this into bankruptcy court and you have a group of hedge funds standing their ground in the front of the line, the TARP banks will be mixed in with them and the banks, depending on their position in line will be able to renege on the handshake agreement to take equity and will probably cash out along with the hedge funds at the higher rate. This is especially true for the TARP banks that are in the position to repay the government like Goldman and JP Morgan.

[sposton]

I hope we will regulate hedge funds to at least the same level Europeans are planning.

http://www.ft.com/cms/s/0/c808beec-351e-11de-940a-00144feabdc0.html

Judging by the response so far it seems Europeans are serious about regulating. Are Americans equally capable to the stand up to these entities? I have my doubts.

[Stupert]

Are you sure that is how it will play out?

The hedge funds and others were holding out in the thought that they could get another $250 million added to the cash buyout of the bondholder debt. Their bet was that the Feds wouldn't want to tip Chrysler into Chapter 11 but unfortunately everyone is going to take the deal that is on the table, except these 20% of the bondholders who haven't signed off.

In Chapter 11 this is a battle they cannot win because that is the way the law works - they can be forced to accept the agreed solution because they don't hold any cards in that situation.

They gambled and lost, and through their arrogance, forced Chrysler into short term bankruptcy and got themselves months if not years of bad publicity and a US President for an avowed adversary.

Well done fellas.

[plumnelly]

I think so too.

[ejhickey]

Many bankruptcy experts think the holdout creditors will get a much better deal in Bankruptcy court than the deal that was negotiated for them by banks that had their losses covered by TARP funds. Also the hedge funds have a fiduciary duty to recover as much money as possible for their investors.