May 11 2009
Can you give back my money?
Believe it or not many find lending business very lucrative in all seasons. And when you have billions of dollars to lend, then you are one of the bellwethers in money making industry. But things have changed in this spooky recession. Chrysler owes around $6.9 billion to its lenders and when creditors learnt that they would be shafted with just $5 billion, they became indignant. But the president’s talks revealed that Chrysler’s resilience would become difficult and slip into bankruptcy and liquidation if lenders are rigid about their $6.9 billion debt. So when creditor says “Give back my money” is it possible to balk by the one who owes?
There is a trick from the hedge-fund playbook; the government used its leverage to be Chrysler’s sole lender either in bankruptcy court or out, to pull in deep concessions from the biggest banks. It took a swift transit through chapter 11 and a new Chrysler was developed, 55%-owned by a trust for union retirees, 35% by Fiat SpA. Those are not even Chrysler’s creditors and senior secured lenders were out of the picture. This strangled a traditional bankruptcy rule wherein senior secured lenders usually get paid in full before lower-priority creditors get anything. This also invited criticism from many that the administration has violated a bedrock principle of American capitalism and unfairly demonized financial firms that are vital to the functioning of the economy and its eventual recovery.
But the decision makers feel that Chrysler needs a bold step to survive in crisis. And Chrysler’s suppliers, dealers and unionized workers are critical for its survival. Fiat also had come in the list as it was seen to contribute high-efficiency engines and foreign distribution. Finally the creditors were viewed to be expendable. “You don’t need banks and bondholders to make cars,” said one administration official.
Banks are already scorned for its financial instability and might not like to get reproached for Chrysler’s failure. This may be the reason for them to be tongue-tied.
-Sophia S Antonysamy
