It is a pretty extraordinary scenario: in a blazingly short amount of time, the Administration has forged a deal that could save thousands of jobs at Chrysler–the major banks are on board, the UAW has made more significant concessions. But all that may come crashing to a halt because of a few hedge funds who are holding the entire car industry hostage because, boo-hoo, they aren’t getting enough out of the deal. What a spectacle.
The president made sure he lived up to his pledge–figure out a way to restructure the company in 30 days or else. And all the major players bought into the agreement.
The UAW accepted a concessionary agreement. For anyone who has followed union negotiations over time, it’s pretty rare to see a union leader admit that he has put his name on a deal that is a serious give-back; it’s always framed in some other language. Not this time:
"Our members have responded by accepting an agreement that is painful for our active and retired workers, but which helps preserve U.S. manufacturing jobs and gives Chrysler a chance to survive," Ron Gettelfinger, the union’s president, said in a statement.
On top of concessions already given in 2005, 2007 and 2008, the UAW members have agreed to accept cuts in pay and benefits. The thing that stands to me are the retirees–the people who worked all their lives expecting to have a decent retirement–who will pay higher medical expenses on a fixed income.
Even the major debt holders were on board. Led by J.P. Morgan, the banks holding 70 percent of Chrysler’s debt agreed to a deal that would effectively mean they would have to write-off a health chunk of change.
The Administration even tossed more cash on the table:
To win over several hedge funds, which have been holding out for better terms, the Treasury increased its cash offer to holders of Chrysler’s secured debt by $250 million, to $2.25 billion, these people said. If all of the secured holders would agree to the new deal, which would give them the cash in exchange for retiring about $6.9 billion of debt, Chrysler would still have a chance of restructuring out of bankruptcy court.
Several investment funds, however, continued to reject the Treasury’s sweetened offer at a vote of the lenders on Wednesday evening, people familiar with the talks said.
Who are those holding out? The Wall Street Journal reports:
Three of the bank-debt holders on the bank-steering committee, Oppenheimer Funds, Perella Weinberg Partners’ Xerion Capital Fund and Stairway Cap Management, told J.P. Morgan and the other large lenders on a bank call Tuesday that they wouldn’t support the deal and would advise other lenders not to support it.
Which is sort of dumb. Even if the hold-out hedge funds refuse to make a deal by midnight tonight, forcing Chrysler to file for bankruptcy, they are unlikely to do any better in the swift bankruptcy proceedings envisioned. Do the geniuses at Perella et al. think that a bankruptcy judge, looking at a deal that has the blessing of the U.S. Treasury, the banks holding 70 percent of the debt, and the the union representing tens of thousands of workers (not to mention Fiat, which is waiting in the wings to scoop up Chrysler) will dramatically alter the outlines of the deal? No.
But, here we are: American workers, the Administration and the public generally is being held hostage by a few deal makers who run the very kind of financial firms that evaporated trillions of dollars in wealth.
UPDATE: it appears that Chrysler is headed for a bankruptcy filing but it is possible that a deal could be made by midnight tonight to avert such an action. This is a helpful description of the possible struggle in bankruptcy:
If that happens, there could be a public brawl between the government, which is effectively propping Chrysler up with billions of dollars in loans, and a group of its recalcitrant lenders over who has claims to many of the company’s assets.
Many of the holdout lenders, primarily distressed-debt hedge funds who bought portions of Chrysler’s $6.9 billion of bank debt at a discount, are likely to argue that they have the first claim to the carmaker’s assets that were pledged for those loans, people briefed on the matter told DealBook.
They argue that they would see greater recovery in a liquidation of the car giant, which they contend would yield about 65 cents on the dollar. The most recent plan proposed Wednesday by the Treasury Department and Chrysler’s four main bank lenders — JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs — would have given the creditors about 33 cents on the dollar.
The bottom line is that the priorities and agenda of the hedge funds are clear: they don’t give a damn about jobs for people as long as they can extract a bit more money, even of that means Chrysler is liquidated.
