Make sure to read the follow up article, "He Who Has the Gold Makes the Rules, or So He Thinks."
While it is clear to everyone that Chrysler, owned by Cerberus Capital Management and Daimler is heading head long into financial ruin, its future isn't as clear.
In an article in the Wall Street Journal (April 29, 2009) titled "Key Lenders Agree to Chrysler Debt Swap," if the proposed debt swap goes through, the UAW will end up owning 55% of Chrysler. This assumes that bank-debt holders, due $6.9 billion will take $2 billion in cash.
If the deal goes through, Fiat will then "...finalize an alliance that would meet U.S. requirements to release $6 billion in new bailout loans." Oh, and this all has to be done by 30 April or Chrysler goes into bankruptcy. Shop DriveTime First! Bad credit, no credit, no problem. Apply on-line.
On the surface, this looks like a bad deal for bank-debt holders. Why should they just take $.27 on the dollar? Why not fight it out in bankruptcy court, as they and secured bond holders are the first to be paid? Also, the large lenders who have agreed thus far, J.P. Morgan Chase and Citigroup, just need the cash, and fast.
Perhaps the bond and debt holders recognize that company majority-owned by a union is a disaster waiting to happen, and they just want to cut their losses. People who switched to Allstate saved an average of $396 per year. Quote Now!
Further, with interference from President Teleprompter and his "czar", Ron Bloom, who knows what Chrysler will look like?
Personally, I think Chrysler is on the verge of becoming another British Leyland. There is one benefit though, watching the UAW strike against itself. The irony would just be too much. Free Shipping on orders over $100
Another reason bank-debt and bond holders should take this to bankruptcy court is that citizens of the U.S., through its elected (poorly) representatives, are going to provide additional billions to Chrysler. You think union corruption at the local level is bad, give them $6 billion of your hard earned dollars and see what happens!
Although I am not in a position to know all of the risk analysis of the various bank-debt holders, it does seem to be quite a quandary. Do you accept $.27 on the dollar now, in cash, or do you risk it, hoping that you will get your monthly or quarterly bond payments?
Finally, what will a union, majority-owned company mean for the rest of the U.S. auto industry? Its end? Or will it mean, at least under President Teleprompter, an endless supply of tax payer money to the UAW. Hmmm, what do you think?? GM, you know you are next!