For the record, I have no problem with whatever cramdown those
debtholders--or any others--get in bankruptcy court. If the judge
thinks that the reorganization can't be done without making the UAW
basically whole, fine. I just think that the reorganization should be
done under the well-established procedures of the bankruptcy court, not
at the behest of an administration trying to reward its supporters.
It's all very well to say that most of the senior lenders are going along, but of course, the leading senior lenders are doing this because the administration has them over a barrel. I think most of the people enthusing about this actually recognize that in other countries, when the government uses the banking system as a slush fund to reward its constituencies, this generally turns out badly--and makes the banking system a lot more frail.
Nor will it fly to claim that the administration's threats--and note that Perella Weinberg has most carefully not denied that they were threatened--are just standard jawboning. Standard jawboning does not involve the White House bloody press corps. It is true that DIP financiers often get to demand serious concessions from creditors, but those creditors are limited by what those creditors would get out of a recession, and are aimed at either maximizing enterprise value, or maximizing the likelihood that the loan will be repaid. This deal does neither.
Perhaps it's idealistic of me, but the American bankruptcy system actually works very, very well. I think we should be very cautious about mucking with it, particularly when there's no reason to. The administration didn't need to beat up the creditors in order to reorganize the company--or at least, they wouldn't have needed to do so, if they weren't trying to make the creditors take less than they'd get in a liquidation. Nor did it need to do so to keep the UAW at the table--unlike capital, the UAW isn't going anywhere. The administration is beating up the creditors because a) it wants to give the UAW a much better deal than they'd get in liquidation and b) they'd like someone else to pay for it. I recognize that the law is always kind of messy, but as far as I know, this kind of blatant political intervention between debt claims is unprecedented, and worse, it's a dress rehearsal for doing the same thing at GM. I don't think this is good for the rule of law, I'm pretty sure it will be bad for capital markets, and I'm nearly positive it's going to make it hard for any heavily unionized company to get substantial capital for the next decade. And why? It hasn't exactly enhanced Chrysler's already dicey chances of survival.
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