Raghu the aspiring bankruptcy lawyer writes:
<<Note, however, the hedge funds have the burden of proof to demonstrate that
the liquidation value is more than the offer on hand. So far, they have utterly
failed to do this. All they have offered so far is the false claim that the
absolute priority rule is inviolable.>>
Not true. Chrysler would have the burden of proof if and when the Judge is
requested to confirm a plan. For that and other reasons, Chrysler has
structured the transaction as a sale and not a plan, which creates a separate
number of issues. As part of the sale, Chrysler has submitted testimony
alleging that the liquidation value is less than $2 billion. The procedural
problem is that Chrysler is also asking that the Court approve the sale in
about three weeks alleging that the sky will fall if the sale is not quickly
approved, which essentially means that the ability of anybody to challenge the
liquidation value will be effectively precluded. There will be incredible
pressure on the Judge to approve the sale and not continue it or require a plan
(which is a lengthy process). My objection is not to the legal strategy of
trying to force a quick sale, which is fair game, but the involvement of the US
government in trying to intimidate parties not to object.
<<You also noted the $1.7B cash balance. But that number needs closer scrutiny.
Is the number up to date?>>
The balance sheet was as of the the date the bankruptcy was filed (i.e. last
week). It is up to date. They have the cash. The problem is that they are
proposing to pay it to creditors, such as vendors, who have junior claims, on
the theory that they need the cooperation of the vendors to maintain the
company as a going concern pending the completion of the sale to Fiat.
<<Also, I expect certain kinds of short-term liabilities are even higher
priority than bond-holders (tax dues?), so how much of that cash would actually
be available in the event of liquidation?>>
Secured claims are senior to unsecured tax claims. While it is obvious that,
for example, the plant and equipment would be heavily discounted in a
liquidation and the balance sheet value is purely nominal, cash is cash.
<<At the very least you have to offer a much more detailed analysis before you
can establish that the hedge funds have somehow been unfairly treated. It is
not at all clear to me that they have.>>
Let's see what happens.
David Shemano
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