Posted by Todd Zywicki:
On Chrysler's Chickens Coming Home to Roost:
http://volokh.com/archives/archive_2009_05_17-2009_05_23.shtml#1242842997
In my [1]WSJ column on Chrylser last week I asked:
Chrysler -- or more accurately, its unionized workers -- may be
helped in the short run. But we need to ask how eager lenders will
be to offer new credit to General Motors knowing that the value of
their investment could be diminished or destroyed by government to
enrich a politically favored union. We also need to ask how eager
hedge funds will be to participate in the government's
Public-Private Investment Program to purchase banks' troubled
assets.
Bloomberg reports that hedge fund managers burned by Obama now are
"[2]wary":
May 20 (Bloomberg) -- Hedge fund manager George Schultze says he
may avoid lending to any more unionized companies after being
burned by President Barack Obama in Chrysler LLC�s bankruptcy.
Obama put Chrysler under court protection on April 30 after lenders
balked at a proposal giving them about 29 cents on the dollar for
their $6.9 billion in debt. The investors said the president�s plan
favored a union retiree medical fund whose claims ranked behind
them for repayment. It was offered a 55 percent equity stake in the
automaker.
Pacific Investment Management Co., Barclays Capital and Fridson
Investment Advisors have joined Schultze Asset Management LLC in
saying lenders may be unwilling to back unionized companies with
underfunded pension and medical obligations, such as airlines and
auto-industry suppliers, because Chrysler�s creditors failed to
block Obama�s move. The reluctance may put additional pressure on
borrowers seeking capital in the worst financial crisis since the
Great Depression.
�Lenders will have to figure out how to price this risk,� Schultze,
39, said in a telephone interview from his office in Purchase, New
York. �The obvious one is: Don�t lend to a company with big legacy
liabilities or demand a much higher rate of interest because you
may be leapfrogged in a bankruptcy.�
Read the whole thing--there is plenty of interesting stuff in there.
References
1. http://online.wsj.com/article/SB124217356836613091.html
2.
http://www.bloomberg.com/apps/news?pid=20601087&sid=asXxg9ZZRjv4&refer=home
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