On Fri, May 1, 2009 at 8:48 AM, Perelman, Michael <[email protected]> wrote: > The ranking of debts in bankruptcy court seems rather arbitrary rather > than a matter of justice. Why should a worker who earned a pension after > 30 years of hard labor on an assembly line have fewer rights than a > speculator who buys a depressed bond in the hopes of making a profit?
A new Bloomberg article gives some details of the hedge fund negotiations. It might also answer some of David's concerns. The hedge funds PR says the deal was unfair because it favored "unsecured junior creditors" ahead of them. And who are these unsecured creditors? The worker's health-care fund. It's indeed a strange definition of fairness that requires rich investors to get priority over ordinary workers. But even worse for the hedge funds, contrary to what David seems to suggest, their claims to priority is not as strong legally as they are arguing. See article below for details. It looks like in this case, the hedge funds have neither justice nor law on their side in this case. http://www.bloomberg.com/apps/news?pid=20601109&sid=aowmZkX0TzEE --------------------------------------snip While lenders representing 70 percent of the Chrysler loans agreed to Obama’s offer of $2.25 billion in cash, the dissidents ignored a deadline of 6 p.m. on April 29, according to one of the investors who declined to be named. Many dissidents paid from 50 cents to 70 cents on the dollar for their Chrysler loans, so they’re sitting on losses, according to people familiar with the matter. Ronald E. Kolka, Chrysler’s chief financial officer, said in a court filing that the first-lien debt is trading at about 15 cents on the dollar in the secondary market. [...] Greater Sacrifices OppenheimerFunds, based in New York, said it rejected the offers because the government “unfairly” demanded that the fund’s shareholders make greater sacrifices than were being asked of unsecured creditors. “Our holdings in secured Chrysler debt are entitled to priority in long-established U.S. bankruptcy law, and we are obligated to our fund shareholders to support agreements that respect these laws,” the company said in an e-mail. In the deal Chrysler tried to conclude out of court, Fiat would have become a 20 percent owner of Chrysler, and a union retiree health-care trust fund would hold 55 percent, with the rest of the company staying in the government’s hands initially, according to people familiar with the matter. The government intends to replicate this model, using bankruptcy to set up a new company, people familiar with the plan said. ‘Absolute Priority’ Chrysler’s dissident lenders have on their side the “absolute priority” bankruptcy rule, which holds that value must be distributed according to the legal priorities of the stakeholders. What riled the group that put out the statement yesterday was that junior creditors -- a workers health-care trust -- would get equity in a new Chrysler entity while the group’s members wouldn’t. “Junior creditors are ordinarily not entitled to anything until senior secured creditors like our investors are repaid in full,” the dissidents said in the statement. The absolute priority rule is regularly modified in bankruptcy court, said Richard Hahn, co-chairman of the bankruptcy practice at Debevoise & Plimpton LLP, a New York law firm that isn’t involved in the Chrysler negotiations. Two- thirds of the lenders can force the holdouts to go along with them in a procedure called a cram-down. Cram-Down “The U.S. bankruptcy code foresees the possibility that it may be necessary to vary from absolute priority, in particular when a two-thirds majority is convinced it makes legal or business sense,” Hahn said. “If the government has consents from 70 percent, that’s more than enough” to give equity to junior creditors. -raghu. -- Never get into fights with ugly people, they have nothing to lose. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
