The Detroit News today bellyaches about how the Chrysler bankruptcy deal “may make raising cash more difficult for companies”. I have no idea where they got this idea, but it’s ludicrous. As the WSJ story on gadfly lawyer Thomas Lauria notes, Chrysler’s secured creditors are getting significantly more out of the existing bankruptcy deal than they would without the government throwing in its billions.
The fact that unsecured creditors (the UAW) are getting some recovery from the Chrysler bankruptcy even though secured creditors are taking a haircut is actually good for the secured creditors: it means they’re getting more than they otherwise would be able to salvage out of a liquidation. And when recoveries go up, raising cash becomes easier, not more difficult.
The Indiana pension funds who hired Lauria and brought the complaint are making very little sense:
“As I’ve said countless times, it wasn’t the investment that was made by our Hoosier pension funds that put Chrysler in bankruptcy,” says Indiana State Treasurer Richard Mourdock. “It’s been the egregious actions of the U.S. government.”
Actually, Chrysler went into bankruptcy because it ran out of money. The overwhelming majority of Chrysler’s secured creditors, knowing a good thing when they saw one, signed on to a plan which allowed Chrysler to come out of bankruptcy. The alternative would be to try to sell off Chrysler’s plants and other infrastructure — assets for which there’s not exactly a lot of bids out there.
Now, depressingly, Lauria has his eyes set on the GM bankruptcy — even though there are no issues surrounding senior creditors at all in that case: GM’s secured creditors are getting paid out in full. The fact is that the government has spent tens of billions of dollars bailing out both Chrysler and GM; bondholders of both companies are much better off as a result. They have nothing to complain about, and it’s ridiculous that anybody is willing to pay Lauria $900 an hour to try to throw a spanner in the bankruptcy works.