President Obama blamed a "small group of speculators" for Chrysler's bankruptcy filing, saying they refused to "sacrifice like everyone else." That group, calling themselves "non-tarp lenders," put out a statement saying they made an offer to take a 40% "haircut" that was "flatly rejected or ignored." Those lenders say they have a fiduciary responsibility to their investors.
Sources familiar with the negotiations say the "non-tarp lenders" were represented by Oppenheimer, Perella Weinberg, and Stairway Capital. None of those firms responded to my calls and/or emails, but Oppenheimer did issue a statement. Here's an excerpt:
Along with more than 20 other secured creditors, OppenheimerFunds rejected the Government's offers because they unfairly asked our fund shareholders to make financial sacrifices greater than those being made by unsecured creditors. Our holdings in secured Chrysler debt are entitled to priority in long-established US bankruptcy law and we are obligated to our fund shareholders to support agreements that respect these laws.
Administration officials say every lender was treated fairly and had an opportunity to participate in the offer that was accepted by the four major lenders (JP Morgan, Citigroup, Goldman Sachs and Morgan Stanley). The administration is confident the agreements reached with the major creditors, the unions, and the suppliers will be upheld by the bankruptcy court. Reily Wein bankruptcy attorney Jason Gold says he's not sure how that will happen, since the lenders who did not sign the agreement are secured creditors, meaning their collateral is the company assets.
Comments
I disagree with the professor. First of all, there may be more retirees than there are workers but when you include dependents I'm sure there are more covered individuals among the active population. And second, there are a number of things that can be done with retiree health benefits. There's Medicare Part B and fairly reasonably priced medigap plans which cover what medicare doesn't. There are reasonable options for prescription drugs. The coverage may not be as good as the coverage for the actives, but it's pretty good. I know of a number of places where bargained for retiree health coverage is a combination of Part B, a medigap plan and a prescription program and has not been deemed a loss of benefit.
In my view coverage for active workers and their families will be the big problem for the UAW. The only options they will have will be benefits' reduction and/or cost sharing. Both of those are considered a loss of benefit.
Labor experts say the UAW will be in an awkward position. They will also have to take on one of the toughest issues, retiree benefits. GW professor Charlie Craver calls it the "elephant in the room" since there are now more auto worker retirees than there are workers.
Just yesterday the media reports applauded the Bank of America shareholders for ousting Ken Lewis as Chairman. It seems the majority of the shareholders were upset that he entered into a deal with the government that caused the value of their shares to drop. As a result they suffered a loss on their investment.
Today the media reports are critical of the hedge fund managers for not accepting a significant "haircut" to their investments in Chrysler. To do so as the lenders correctly state, could be viewed by those investing in those hedge funds as a breach of the managers' fiduciary responsibility and could possibly result in legal action against those managers.
It seems we're not sure which side of the fence we're on.
Speaking of sides of the fence---it'll be interesting to see how the UAW runs a company from the management side. Now they'll get to see how the other half lives.