Above the Law has more on the Second Circuit Court of Appeals’ decision to let the bankruptcy court’s decision stand in the Chrysler bankruptcy over the challenges of Indiana Treasurer Richard Mourdock and the Indiana funds.
A key piece of information I don’t think has been made too clear in most news reporting is that Indiana bought the debt it now holds for $0.43 per dollar in July 2008. Under the plan it is challenging, it will be paid $0.29 per dollar. Given what happened economically in this country between July 2008 and the present, it’s hard to view that decline in value as somehow unconscionable. I know a lot of people with reasonably safe investments who would have been thrilled to see a decline of only 14 cents on the dollar for their investments over the past year.
The sale will remain stayed until 4 p.m. on Monday to give the Indiana funds a chance to try to get the Supreme Court to look at the case.
Math quibble –
29/43 = .674
So they get back 67.4 cents on each dollar that they spent.
1 – .674 = .326
Aren’t they thus losing about 33% of the actual outlay, instead of 14%?
One of us is using the wrong basis…
[Either way, it’s a painful number when you were hoping to MAKE money.]
When one is buying a dollar of debt for 43 cents, one should probably ask why it is so cheap…
Is there some reason Mourdock had to use outside counsel on this, rather than state legal? I”ve been trying to track that part of the story, but have only seen a few mentions of it here and there.
The bankruptcy case is taking place in New York, and a bankruptcy of this magnitude is such a specialized thing that I wouldn’t fault him for going outside to get a big time law firm.
Your first commenter is correct. Your post is very misleading. Their losses are 32.6 cents on the dollar, not 14.
I doubt many people would be thrilled with such a loss.
Even a 1/3 loss isn’t that uncommon for investments between Aug. 2008 and the turn of the year. I would imagine they are even less uncommon for distressed investments such as Chrysler which was apparently selling for half of its face value even before the market completely tanked in October.
I was looking at the comments, and it seemed to me that what is being overlooked is the simple premise that we have the rule of law in America. That enforcement of contracts is not arbitrary nor is enforcement of the law subject to any dictatorial power or political influence. It’s not about trying to justify the losses, especially if government exacerbated them with illegal actions.
In a free market economy where one wants and depends on investment in such, introducing what is called “political risk” to an economy means that return on investment in one’s country would need to increase to justify the downside of your contracts being nullified by executive or dictatorial decree.
To make a business investment in some other country for example demands a higher return on investment because who knows what could happen tomorrow, you’re assets could be nationalized like Iran did in the 1950s to the Anglo-Persian Oil Company [now British Petroleum], eventually leading to U.S. assisted 1953 overthrow of their government, the Shah, the 1979 hostage crisis and the troubles we have today [but, I digress].
In America, if you purchase or own the secured debt of a company, your expectation is that the law will be upheld and that you will get preferential treatment over the unsecured creditors. You have fancy spreadsheets and calculations to support and justify your investment. When government leaders try to undermine the rule of law and your contractual rights then we induce ‘political risk’ into the equation and relegate ourselves to no better than a third world country run by dictators.
Looks to me like the rule of law is being followed here. Bankruptcy is a well known possibility for any investor. In this case, it looks like the secured creditors are getting more than they would have under a liquidation.
There don’t appear to be any other lenders eager to step in and risk money on a reorganization. So, either it’s the government-sponsored plan — where the government is acting a lot like any other lender of last resort — or liquidation.
Supreme Court Grants Request to Put Hold on Chrysler Sale to Fiat
Well….well…well
Yup. From what I read, the order was a “temporary” one that essentially gave Ginsburg and/or the Supreme Court more time to look at the filings. I put “temporary” in scare quotes because the stay was not time limited – rather it’s stayed until “further order.”