There was dramatic announcement made Friday about some tactics used in the Chrysler negotiations that occurred just prior to the company filing for bankruptcy.
As Michael discussed on below, the Obama administration may have had its figurative thumb on the scale during the final negotiations. At issue is whether the Obama administration is using thug tactics to intimidate parties of interest in the negotiations to restructure Chrysler outside of bankruptcy.
Tom Lauria, Global Practice Head of the Financial Restructuring and Insolvency Group at White & Case, says the White House (via car czar Steve Ratter) threatened his client (Perella Weinberg Partners) with political retribution if they did not surrender some of their rights as senior secured creditors of Chrysler. A senior secured creditor is higher up the food chain in bankruptcy and usually stands a better chance of being repaid a higher percentage of the ultimate settlement than a junior unsecured creditor. Because Lauria’s clients took a hard line in the negotiation (nothing unusual about that) President Obama labeled them greedy hedge fund sharks unwilling to sacrifice like everyone else.
Upon closer examination, the facts contradict the President’s rhetoric. The Obama administration was pushing for a junior unsecured creditor (the auto worker health care trust) to trump the senior secured creditors and move ahead of them in the line to be paid. That’s a political payoff pure and simple. The senior secured creditors (many of which represent retirement funds and savings plans) said no. The Obama administration then deployed the brass knuckles. As one blogger notes, Car Czar Rattner got downright Nixonian about the resistance to The One:
Confronting the head of a non-TARP fund holding Chrysler debt and unwilling to release it for any sum less than that to which it was legally entitled without compelling cause, this country’s “Car Czar” berated the manager of said fund with an outburst of prose substantially resembling this:
Who the f*ck do you think you’re dealing with? We’ll have the IRS audit your fund. Every one of your employees. Your investors. Then we will have the Securities and Exchange Commission rip through your books looking for anything and everything and nothing we find to destroy you with.
Note that the group confronted was non TARP, which is to say that they didn’t wear the government collar and thus couldn’t be controlled so easily. The White house is furiously spinning that Lauria is lying.
“The charge is completely untrue,” said White House deputy press secretary Bill Burton, “and there’s obviously no evidence to suggest that this happened in any way.”
The “no evidence” qualifier says it all. However, as Zero Hedge notes:
What is strangest is that Lauria would stake his career and reputation on the line by stating on the record the facts previously disclosed. As such his downside is much bigger than that of Mr. Burton or of the PW’s spokesperson, as they effectively side with the Obama’s side of the story.
Indeed, I find it highly unlikely that the senior partner of a major New York law firm would toss his career in the dumpster to score a few political points. That said, obviously someone is lying here and it will be interesting to see how the story unwinds. If Mr. Lauria’s accusations are true then we may have just seen the first preview of how the federal government will roll out its plan to take over huge swaths of the private sector and dole awards to political constituents such as the unions.
Update: It appears GM is headed the same way for the same reasons:
Chrysler filed for protection April 30 after the U.S. was unable to persuade secured lenders to swap $6.9 billion in claims for $2.25 billion in cash. A union retiree health-care trust was offered a 55 percent stake in Chrysler.
“This confirms the fear, which right along has been that the Obama administration is more sensitive or beholden to the unions than the bondholders,” he said. “It makes it clear that GM bondholders aren’t likely to be able to work out anything outside of bankruptcy.”
Perhaps the Obama administration gave the Chysler senior secured bondholders the Luca Brasi treatment as a heads up for GM.