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Bloomberg – Hedge fund manager George Schultze says he may avoid lending to any more unionized companies after being burned by President Barack Obama in Chrysler LLC’s bankruptcy.
Obama put Chrysler under court protection on April 30 after lenders balked at a proposal giving them about 29 cents on the dollar for their $6.9 billion in debt. The investors said the president’s plan favored a union retiree medical fund whose claims ranked behind them for repayment. It was offered a 55 percent equity stake in the automaker.
Washington Post – The government-orchestrated sale of Chrysler to Italian carmaker Fiat is facing a fresh legal challenge from some of the American carmaker’s lenders, which are trying to take the fight to federal district court.
Pension funds representing Indiana teachers and police officers, and a state construction fund, filed Wednesday to have the Chrysler bankruptcy proceedings heard by the district court, which has authority over the bankruptcy court.
The funds contend that the automaker’s sale violates their rights as senior secured lenders to Chrysler, and that under the proposed sale, they would recover less than junior lenders. They also think the government does not have the authority to use federal rescue money designated for banks to bail out Chrysler.
President Obama’s harsh attack on hedge funds he blamed for forcing Chrysler into bankruptcy yesterday sparked cries of protest from the secretive financial firms that hold about $1 billion of the automaker’s debt.
Hedge funds and investment managers were irate at Obama’s description of them as "speculators" who were "refusing to sacrifice like everyone else" and who wanted "to hold out for the prospect of an unjustified taxpayer-funded bailout."
"Some of the characterizations that were used today to refer to us as speculators or to say we’re looking for a bailout is really unfair," said one executive who spoke on condition of anonymity because of the sensitivity of the matter. "What we’re looking for is a reasonable payout on the value of the debt . . . more in line with what unions and Fiat were getting."
Reuters – General Motors Corp on Thursday said its auditors had raised "substantial doubt" about its ability to survive outside bankruptcy if it fails to stem its losses and stop burning cash.
The "going concern" warning from the struggling U.S. automaker had been expected, but underscored the stakes for GM as it seeks up to $30 billion in U.S. government aid to restructure outside a court-supervised bankruptcy process.
GM’s shares dropped 15 percent to $1.87 in premarket trading.
GM said its creditors had agreed to waive a requirement that could have allowed them to force the automaker to repay more than $6 billion in loans because of the warning in order to allow GM to press its case for government aid.
Bloomberg – Chrysler LLC, needing lender concessions by March 31, isn’t negotiating with its banks because it can’t persuade them to discuss trading loans for uncertain equity, people familiar with the companies’ actions say.
Chrysler must reduce its debt by $5 billion by getting creditors such as JPMorgan Chase & Co. to trade debt for an ownership stake or by changing loan terms in order to be viable, the Auburn Hills, Michigan-based automaker said on Feb. 17 in a plan submitted to the U.S. Treasury.
Banks have little incentive to trade their loans, and the only other creditors Chrysler lists that could take more equity for debt are the U.S. government and the United Auto Workers union, which already has agreed in principle to reduce its obligation by 50 percent.
“It’s going to be a tough sell to get the banks to give up their position for worthless equity,” said Don Workman, a bankruptcy attorney at Baker & Hostetler LLP in Washington. “The best Chrysler can hope is that the government is going to force them to do it.”
The banks, which include Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and JPMorgan, would be first to be repaid in the case of a bankruptcy. By taking equity in exchange for debt, the banks would lose that standing they now have. The caveat is that each of the banks has taken U.S. government aid from the Troubled Asset Relief Program and may be subject to Treasury’s influence, Workman said.
New York (HedgeCo.Net) – GMAC LLC, the financing arm of struggling U.S. automaker GM, will receive $6 billion from the federal government.
The deal entails the treasury purchasing $5 billion in senior preferred equity in the company, while providing GM with a $1 billion loan. This is in addition to the earlier $17.4 billion required to keep both GM and Chrysler afloat.
The government said the deal comes as “part of a broader program to assist the domestic automotive industry in becoming financially viable.” GMAC will pay an 8 percent dividend as part of the deal, while the Treasury will receive preferred equity via warrants from GMAC, equaling 5 percent of the preferred-stock purchase. These will pay a 9 percent dividend.
Originally, the Fed’s loan required GMAC to raise new capital through a debt-equity swap that was unsuccessful multiple times. The company had said it would raise $30 billion by converting some of its debt to preferred-stock holdings. As of last week, after multiple extensions, GMAC was still short. However, they have announced amidst the government’s aid, that they have been able to raise the capital.
GMAC recently changed its status to a bank-holding company, so they could be eligible for federal help and other advantages. The company says they plan on making credit more readily available again to consumers, after a large drop in auto financing due to their own financial woes. The new status also entitles GMAC to receive short-term emergency loans from the government if needed.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
