What Does the Chrysler Bankruptcy Change?
So Chrysler is headed for bankruptcy, and Obama is headed to the podium at 12pm to deliver comments on the state of the auto industry. More details will spill out today, along with top management at the company and various recriminations between the government and the creditors. But the Chrysler bankruptcy is not a surprise -- it's been likely since last month's viability determination (pdf) -- and it's not clear that it changes all that much.
The Fiat deal is looking more likely -- indeed, it's been reported as certain -- despite the fact that merger and bankruptcy were presented as either/or: either the company works out a deal or gets off the government dole and heads to court. But now it gets bankruptcy court and the merger! Chrysler can have the threats and eat them too.
And if this bit from DealBook is true, then the administration will probably get its way with the company's creditors:
The government and Chrysler will likely try to use the powers of bankruptcy law to force their proposal on the reluctant creditors. Under the federal bankruptcy code, companies need only a majority of a creditor class -- defined as two-thirds of the dollar amount of that class of debt, and more than 50 percent of the holders of that class -- to agree to a reorganization's terms to foist that plan upon holdouts.
DealBook says that as of last night "it wasn't clear whether the government would be able to satisfy the majority requirement under bankruptcy law." But isn't it pretty clear? Here's the AP:
Four banks with 70 percent of Chrysler's $6.9 billion debt had agreed to erase it for $2 billion, or less than 30 cents for each dollar held. That left Chrysler's fate in the hands of about 40 hedge funds with about 30 percent of the debt.
So what changes, other than the name of the process?