News on the Chrysler Saga

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This weekend there was some very interesting information about the Chrysler bankruptcy in Barron’s. This past week we had a lot of news about some debt holders not agreeing to the plan and holding out for more money and this forced Chrysler to file for bankrupt. I think that is a true statement but as with everything today not the entire story. When you have many groups holding debt of a company the debt holders are generally placed in similar groups as they would be in bankruptcy court.
Chrysler has four different groups of debt holders, 1st lien holders, 2nd lien holders, 3rd lien holders and unsecured. The group that should get the largest percent recovery is the 1st lien holder and each group there after getting a smaller percent. The unsecured holders may get nothing or a very small percent of their debt in a bankrupt court. The plan that was rejected shows the 1st lien holder with $6.9 billion and they were to get $2 billion (about 29 cents for each dollar of debt). The 2nd Lien holders had $2 billion and were getting nothing. The 3rd lien holder had $4.3 billion and they were to get 8% equity in the new company. The unsecured was $10.6 billion and they were getting $4.6 billion plus 55% of the new company. As you can see the numbers are all over the place.
The 1st lien holder is secured with all of the plants, inventory, equipment, the Chrysler name. They are the physical Chrysler and if the company is liquidated they are first in line for money (this is a group of banks and hedge funds, mutual funds, retirement funds). The 2nd lien holder is Cerberus/Daimler and they had stated they were not looking for any money or ownership in the new company. The 3rd lien holder is the U.S. Government we loaned Chrysler $4.3 billion and we were to get 8% in the new company (the value of the new Chrysler is estimated to be $10.billion so our share would be $800 million). This is a loss of $3.5 billion of the money loaned to Chrysler. This is you and I. The unsecured creditor is the UAW and they were to get $4.6 billion note at 9% interest plus 55% of the new company about $5.5 billion in value. The UAW was due $10.6 billion and would get 10.1 billion plus interest. The UAW would get almost 100% of the debt owed. The only ones taking a loss are the secured creditors.
It will be very interesting to see how the Bankruptcy Judge handles this. If the company presents the same plan they could have a real problem based on pervious history. The decision is in the hands of the bankruptcy judge and we will see this unfold over the next 60 to 90 days.