On Fri, May 1, 2009 at 6:52 PM, David B. Shemano <[email protected]> wrote: > Here is a link to Chrysler's balance sheet: > http://www.distressed-debt-investing.com/. The existing plan proposes to > pay secured creditors, who have a first priority lien on all assets, $2 > billion. What immediately stands out? How about the fact Chrysler, today, > is sitting on $1.89 billion in cash. Add in $1.6 billion in receivables. > Add in $4.6 billion in inventory. Add in $16 billion in property, plant and > equipment. Are you going to tell me that when Chrysler is sitting on $1.89 > billion cash, its liquidation value is $2 billion?
As the WSJ article I linked to explains, the "first lien priority" of secured creditors is not as absolute as you seem to suggest. The Obama plan was simply asking the dissident hedge funds to accept the returns they would get under bankruptcy law without actually forcing a declaration of bankruptcy. The hedge funds are forcing a potentially risky bankruptcy out of sheer bloody-mindedness. I am sure you are much more knowledgeable about this being a bankruptcy lawyer, but maybe you can comment on the following excerpt from the article: 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. -- "Last night my friend drank 26 bottles of O'Douls... He is a non-alcoholic." - Mitch Hedberg
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