So how do you guys feel about the Chrysler secured bondholders getting screwed?

Um, it's still against the law. I'm not comparing the methods. I'm comparing the outcomes. They are saying that these are extraordinary times to justify what they are doing.

Do you have anything valuable to contribute other than police work?

 

They shouldn't have bailed the banks out. They should have gone belly up and I should have made more money on my shorts. Life just isn't fair you just have to deal with it.

 

You remind me of the article that was written about Kobe where it basically said that he is a very negative person. No matter what he does, he always has to try and humiliate the other person.

 

from bloomberg


By Tiffany Kary and Christopher Scinta

May 27 (Bloomberg) -- The lawyer who represented Chrysler LLC’s</a> dissident lenders is organizing some General Motors Corp. bondholders and plans to argue in any GM bankruptcy that the loser this time will be will be Main Street, not Wall Street.

GM, the largest U.S. automaker, faces a probable bankruptcy filing by June 1 following the refusal of bondholders to accept a 10 percent equity stake in a new company, part of a U.S.- backed plan to give the American and Canadian governments equity ownership of as much as 69 percent and a 17.5 percent trust for unions. GM bondholders hold $27 billion in claims.

“The difference with GM is that, whereas the ‘bad guys’ in Chrysler were hedge funds, who Obama called ‘speculators,’ here they’re Main Street -- individual retirees who bought bonds when they were like gold bullion,” said Thomas Lauria, a lawyer with White & Case LLP who represents Chrysler lenders fighting that company’s U.S. backed reorganization. Lauria said he is seeking to represent GM bondholders in any bankruptcy of that company.

In the Chrysler case, the dissident debt holders disbanded 10 days after the company collapsed, citing political pressure that began when U.S. President Barack Obama criticized the group. Evan Flaschen, chairman of the restructuring department at law firm Bracewell & Giuliani LLP, said uncooperative GM bondholders may be less politically vulnerable.

Retirees Versus Retirees

“The story that hasn’t been told is, this isn’t GM’s union retirees versus the bondholders. It’s retirees versus other retirees,” said Flaschen, who isn’t involved in the GM matter. While Chrysler’s dissidents lost steam because they were forced to identify themselves and faced public stigma, including alleged death threats, GM’s opponents may be harder to criticize, Flaschen said.

GM Chief Executive Officer Fritz Henderson has said the U.S. Treasury allowed the automaker very little flexibility in its negotiations with bondholders. Julie Gibson, a spokeswoman for GM, declined to comment.

“We’re stuck, we need the white knight,” said Gary Thomas, a retired auto mechanic and GM bondholder, in an interview. “I’m not asking for special treatment, I’m just asking for parity. I just feel like whatever the UAW gets, the bondholders should get.”

Roger Kerson, a spokesman for the United Automobile Workers Union, didn’t return a call seeking comment. Jenni Engebretsen, a spokeswoman for the Treasury, didn’t respond to an e-mail seeking comment.

Individual Creditors

Thomas said he has joined a group of individual creditors called GM Bondholders Unite that wants Lauria to represent them. The group is trying to gather investors and hire legal representation to get “fair and equitable treatment” in a bankruptcy, according to its Web site.

Former GM employee Jim Graves, 58, said he represents his 80 year-old mother, Vivian Floyd. Graves, of Celebration, Florida, said he plans to fight the government’s offer to return pennies on the dollar for her $100,000 investment in GM bonds.

“What it boils down to is about half a cent on the dollar at today’s price of GM stock,” he said. “It’s stunningly unfair.”

Graves calculated that his mother’s bonds may be worth 9 cents on the dollar if stock in the new GM reaches half of the company’s decade-long high of about $63 a share. Graves, part of a group calling itself The Main Street Bondholders Coalition, said he didn’t have legal counsel.

Lauria said he seeks to represent some individual GM retirees if Detroit-based GM seeks court protection. As with Chrysler, the attorney said the Obama administration is subverting the U.S. bankruptcy code.

Last Month

In the case of Auburn Hills, Michigan-based Chrysler, filed last month in U.S. Bankruptcy Court in Manhattan, Lauria argued on behalf of a group of hedge funds calling themselves “Non- TARP” lenders. He sought to distinguish his clients from recipients of taxpayer money from the Troubled Asset Relief Program who backed the U.S. plan.

The lawyer claimed that the U.S.-backed reorganization plan for Chrysler subverted the law by paying some unsecured creditors more than secured creditors, who by law, he said, should have priority.

“Obama painted the Chrysler non-TARP lenders as evil, but when you look at whose investing in these funds, it’s pension plans and mutual funds,” said attorney Michael Foreman of Dorsey & Whitney LLP. “Who’s investing in mutual funds and pensions? It’s people on Main Street.”

Lauria didn’t disclose which GM bondholders he represents. He said he would seek to have his fees paid out of the GM bankruptcy estate.

Nevin Reilly, a spokesman representing the ad hoc group of bondholders that has been negotiating with GM, declined to disclose the identities of the holders his group represents.

Junior Creditors

Workers aren’t always treated as junior creditors. The U.S. bankruptcy code specifically provides for employees to get preference over bondholders, said Richard Hahn, co-chairman of the bankruptcy practice at Debevoise & Plimpton LLP, a New York law firm, who isn’t involved in the GM negotiations.

Section 1114 of the code requires a debtor “timely pay” all retiree benefits unless the bankruptcy court orders otherwise, or the authorized representative of the recipients of those benefits agrees to other treatment, Hahn said.

In a GM bankruptcy case, Lauria said he would argue that, because unions and bondholders are both unsecured creditors, their claims should get equal treatment.

He said GM’s initial offer to bondholders would have given union-workers 12 times their recovery. Under the new U.S.- plan, bondholders will still get less than the unions, he said.

“The new paradigm seems to be that the contractual rights of creditors can be overwritten to protect politically favored entities like labor unions,” Lauria said.

‘Unfair’ Plan

Flaschen predicted that, while the U.S.-backed reorganization plan for GM may be “unfair” under the bankruptcy code, it’s bound to succeed.

“To put it crassly, you need the employees going forward, you don’t need the bondholders,” Flaschen said.

Flashchen said bondholders may argue against the U.S.- funded debtor-in-possession loan that calls for a “good GM” and a “bad GM,” claiming it violates federal bankruptcy law by being a secret plan of reorganization.

GM’s $3 billion of 8.375 percent bonds maturing in 2033 have fallen to 7.13 cents on the dollar from 21 cents at the beginning of the year and 70 cents 12 months ago, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 115 percent.

GM and the U.S. are likely to say that bondholders will get more under its plan than in a liquidation, Flaschen said.

“If you were the judge, you would be told by the government, that if GM liquidates--if you don’t do this--another 2 million people will be out of jobs,” Flaschen said. “Do you want to be the judge who decides that?”

The Chrysler bankruptcy case is In re Chrysler LLC, 09- 50002, U.S. Bankruptcy Court for the Southern District of New York (Manhattan)

To contact the reporters on this story: Tiffany Kary in U.S. Bankruptcy Court in New York at tkary@bloomberg.net and; Christopher Scinta in U.S. Bankruptcy Court in New York at cscinta@bloomberg.net.

 

Aren't we discussing the secured bondholders though? I'm not too familiar with bankruptcy law, other than shareholders are lucky to get breadcrumbs.

 

If robbie is right, its the secured bond holders that are getting less than unsecured ones. There shouldn't even be a question on who gets paid first, secured debt should be serviced first, then decide what are orders of priority for unsecured bondholders.

 

Not really - a civil dispute over creditors rights and unconstitutional/criminal act by the government, especially where that act is probably the most odious ones in the history of all law (torture is traditionally recognized internationally as in the category of acts, such as rape, etc that can NEVER be legal under ANY circumstances) are two very very different things legally speaking. That's why government officials can be prosecuted criminally for constitutional violations, not so for an expansive interpretation of TARP. The law recognizes the difference.

The government is engaged as a party to thousands and thousands of civil cases at any given time, does that mean that the government is always acting "against the law"? No, because the government has a good faith argument in most of those cases that can be grounded in legal facts.

Other than pointing out how shallow your analogy/understanding of this problem is? Not really - I mean I started reading the complaint (it largely rests on a matter of statutory interp regarding a particular tarp provision, at least from the first few pages- which by the way, was invoked by PAULSON with respect to the Autos) - there are gray areas and there are black and white issues. This is a gray area and the government is acting with respect to payment preference rights in a commercial dispute. Torture is an easy issue and it has to do with human/constitutional rights. You don't need to go to law school to be able to comprehend that, though you appear to be having trouble.

 

the sec's web site says secured bond holder have first claim, don't know if its law


http://www.sec.gov/investor/pubs/bankrupt.htm

 

This reorganization is against the rule of law. Secured creditors are entitled to first dibs under the "absolute priority rule" in bakruptcy law. Since you are a superstar lawyer, I'm sure you are well versed in bankruptcy law. There is no justification for junior creditors to get more than senior creditors. The government is stepping outside of its boundaries, yet you seem to be fine with it.

 

I am no expert in bankruptcy law, but seriously what's gray about secured bondholders have priority over unsecured ones?

 

Oh, then maybe you should file an amicus brief lending us your informed legal perspective on this - I'm sure your hybrid torture/rule of law estoppel argument would go over well.

 

Oh, follow the law and it is that simple? Hey free to choose. Remember Milton Friedman, the patron saint of the "free" enterprise ideology? The private equity guys who ran and owned Chrysler were free to choose to not accept government money.

Granted our representatives in the government should have made it more explicit the conditions under which they gave our money to Chrysler. Usually conservatives are all up and arms. "Who gives the government the right to take my money to these other folks". or whatever.

 

That's not the legal issue that's being challenged. I read the first few paras of the complaint, which deal with TARP's applicability and powers and their extension ot the auto bailout. Plaintiffs say no, Paulson ruled yes on the grounds that the the financing arm of the auto companies grandfather in the autos themselves.

Anyway if the rights of creditors in bankruptcy were so black and white, why do we even need bankruptcy courts? secured creditors take haircuts, etc etc etc...unsecureds try to elbow to the front of the line, the US trustee has an input.....what would be clearly illegal woudl be if Obama admin closed the doors fo the federal bankruptcy court and simply ignored chapter 11 altogether, that's not what happened.

 

Can you justify unsecured creditors getting more than secured creditors legally? Let's see if it you can.

 

I can see your point, but there are many examples in which government money is rightly given to subgroups that are not the population as a whole. This may very well be one of those cases as we are not just giving the money to the UAW because they are the UAW, but because we think it is society's interests not to have the industry fail.

 

Sure - because the parties to the settlement agreed to it. These are private arrangements and this is a distinction you shoudl appreciate before you file your brief.

 

There are reports that they agreed to it because on the White House using bully tactics and threatening them.

Whatever is happening, the government isn't looking too good in this one.

 

In simple terms, it would be analogous to the Government giving the swine flu vaccine to uninsured folks before the insured ones. There is a price to be first paid in the situation of insolvency, an "insurance" you get paid first, if you will.

 

So you saying because of TARP, government now has a say on the priority structure on a bankruptcy case? Even if that's true, I find it hard to believe there are any grounds for unsecured getting MORE than secured.

Auto bailouts should not have been done. (I know it started with paulson)

 

Why? why do secured bondholders deserve more than unsecured?