Subscribe: RSS Feed | Twitter | Facebook | Email
Home | Contact Us

Statement From Non-Tarp Lenders To Chrysler

Posted by Larry Doyle on May 1, 2009 8:52 AM |

In my April 2009 Market Review, I commented on how Uncle Sam is not a good business partner.  Business Wire issued the following statement from Chrysler’s Non-TARP Lenders: 

NEW YORK–(BUSINESS WIRE)–As of last night’s deadline, we were part of a group of approximately 20 relatively small organizations; we represent many of the country’s teachers unions, major pension and retirement plans and school endowments who have invested through us in senior secured loans to Chrysler. Combined, these loans total about $1 billion. None of us have taken a dime in TARP money.

As much as anyone, we want to see Chrysler emerge from its current situation as a viable American company, and we are committed to doing what we can to help. Indeed, we have made significant concessions toward this end – although we have been systematically precluded from engaging in direct discussions or negotiations with the government; instead, we have been forced to communicate through an obviously conflicted intermediary: a group of banks that have received billions of TARP funds.

What created this much-publicized impasse? Under long recognized legal and business principles, junior creditors are ordinarily not entitled to anything until senior secured creditors like our investors are repaid in full. Nevertheless, to facilitate Chrysler’s rehabilitation, we offered to take a 40% haircut even though some groups lower down in the legal priority chain in Chrysler debt were being given recoveries of up to 50% or more and being allowed to take out billions of dollars. In contrast, over at General Motors, senior secured lenders are being left unimpaired with 100% recoveries, while even GM’s unsecured bondholders are receiving a far better recovery than we are as Chrysler’s first lien secured lenders.

Our offer has been flatly rejected or ignored. The fact is, in this process and in its earnest effort to ensure the survival of Chrysler and the well being of the company’s employees, the government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades.

We have a fiduciary responsibility to all those teachers, pensioners, retirees and others who have entrusted their money to us. We are legally bound to protect their interests. Much as we empathize with Chrysler’s other stakeholders, the capital is just not ours to contribute to their cause by accepting a deal that is outside the well established legal framework and cannot be rationalized as being commercially reasonable.

We are continuing to discuss our position with the United States Treasury. We have made a proposal which we earnestly believe is fair and would appropriately recognize our legal position.

As President Obama implied yesterday, it is likely that Chrysler will have to file Chapter 11 whether or not all lenders agree to any particular proposal. Chapter 11 is often used to help implement an agreed deal and dispose of unwanted legacy liabilities. We are hopeful and optimistic that we will reach a positive resolution of our issues so that all stakeholders will move forward together to implement Chrysler’s “quick trip” restructuring in an un-contested proceeding. Our Group will never initiate a bankruptcy filing on Chrysler – that is a decision for the Company and the Administration to make.

As we all appreciate, laws are the foundation of our economy and society. Despite recent travails, our country remains the economic envy of the world and the United States remains a vital engine of global growth. The rule of law made it that way. We urge that people remember this and not succumb to unproductive and unwarranted finger pointing.


The Committee of Chrysler Non-Tarp Lenders

This statement speaks for itself. My only comment is in regard to the creditors’ final assertion. Chipping away, if not crushing, the rule of law in our economy and society will come at a VERY HIGH price. I believe government representatives are misinformed and unappreciative of that price. I encourage investors and the public at large to remain vigilant and vociferous on this issue.

Please start by sharing your your thoughts and sentiments here. 


  • lizzy

    This lack of respect for our laws and regulations is everywhere. You see Obama’s simpering face on every paper and magazine, but in actions there is complete corruption and lack of integrity. This treatment of the secured Chrysler bond holders; the revelations about Ken Lewis and Bank of America. The phony accounting tricks of the bank earnings. It seems all lies.

  • Lizzy,

    Obama’s approval ratings amongst the general population are supposedly running around 65% but with a lower figure for his handling of the economy.

    A poll amongst financial planners had a 65% disapproval rating. Highly critical of the massive deficit spending and lack of fiscal discipline.

    Shaping up as a classic tax and spend liberal.

  • TeakWoodKite

    What is the problem? If the last admin can create from whole cloth a “legal arguement” that torture is legal for those who seek to “cut in line” by torturing investors….
    they are people to, aren’t they?

    (snark off)

    LD, I simply do not understand why an unsecured gets paid before a secured one? Lee must really be crying in his soup.

  • Kerkira

    What vacuous twaddle. Which law is it that dictates that any deal that gets cut outside of bankruptcy has to follow secured-creditor-first rules?

    It’s not a legal problem you’re upset about, but a political problem. But please do whine all you want about Obama’s strongarming. While you’re at it, make sure you mention that the unsecured creditors you revile are UAW retirees. And lobby the non-TARPs to demand liquidation in front of Judge Arthur Gonzalez. All that, combined with reports that the difference between the non-TARPs demand and the government’s offer was only about $1b, will enlighten the American people about how much this is about lofty principles, and how much is about morally bankrupt entitlement. As a bonus, we might finally have a rigorous debate about the value and effectiveness of creative destruction. I’ll stock up on popcorn.

    • Kerkira….and whom do you think the secured lenders represent? Pensions, retirees, unions, individuals, et al…

      The term fiduciary responsibilty carries with it a legal obligation.

      Morally bankrupt entitlement? Please enlighten.

      I think this is about an industry which is trying to operate with a broken business model.

      All this said, I’m glad you found the site and please visit and comment often.

Recent Posts