Most of the stories I've seen about the Supreme Court at least temporarily holding up the Chrysler/Fiat deal treat Indiana Treasurer Richard Mourdock more than a little dismissively. How dare this little twerp threaten the deal woth billions that could save thousands of jobs just because a few pension funds might end up a few million short? This piece, headlined "Chrysler's Bankrupcty Hiccup," is typical:
News that Supreme Court Justice Ruth Bader Ginsburg has granted a stay on Chrysler's sale to Fiat makes a cameo appearance on the front page of the New York Times, the Wall Street Journal, and the Washington Post. The surprise action caught even the creditors, led by three Indiana pension funds, off-guard.
Just a cameo appearance in the Big News of the day -- only a tiny blip on the screen, you see, destined to disappear without a trace as this deal is rushed through without much thought. Why, even the people who caused this -- those silly, bothersome creditors, didn't expect to win. Mourdock should probably be grateful, though. If you're going to be reduced to a bodily function by opponents and critics, a hiccup is probably the best you can expect these days.
But everybody keeps pointing out what a tiny percentage of the deal those Hoosier creditors represent -- a mere $42.5 million, hardly worth mentioning in context of the company's $6.9 billion in secured debt. The implication is usually that Mourdock and his rube clients should just eat their puny losses and stay off the big dogs' porch. But it's fair to turn that around: If it's such a tiny, insignificant, not-worthy-of-notice amount, why doesn't Chrysler just pay it to avoid all the hassle?
I know why, but I doubt if anybody involved would be willing or able to say it.
Comments
It's not even 42.5 million, Leo. That's just the face amount of the distressed debt the funds bought in August 2008 for about 40% of their face value. The funds spent $17 million for that debt. Under the Fiat plan, they are expected to get 29% of the face value of the debt they purchased - about $12 million.
Most of the news reporting I've seen implies that junior creditors are somehow cutting in front of secured creditors, but reading the bankruptcy court judge's order, that's not the case. No one other than the first priority lien holders are getting anything for debts that accrued prior to the bankruptcy. To the extent the UAW and the U.S. Government are getting stakes in the New Chrysler, it's for new value added.
Finally, I am unaware of anyone pointing to a scenario where first lien holders get any more money than they're getting in the Fiat deal. Liquidation appears likely to yield between $800 million and $1 billion instead of the $2 billion paid under the Fiat restructuring. There aren't any other lenders out there.
If Mourdock is going to spend wads of money on this legal battle, he should at least have a plan to get more back (after deducting the legal fees) for the Indiana funds.