I’ve been writing long pieces about Mourdock’s challenge to the Chrysler bankruptcy on behalf of the Indiana funds. But, for me, it comes down to this: How would Indiana get more money if Mourdock had won?
Perhaps I could see something other than futility in his actions if that piece of the puzzle was filled in.
Option 1 = Liquidation – this yielded less money for Indiana than the fiat sale.
Option 2 = Fiat sale – this was the challenged action.
Option 3 = None has been articulated – let alone shown to be reasonably available or more profitable to secured lenders.
The wailing and gnashing of teeth has been about the UAW getting something. Given the options, it was as if Mourdock would have been happier if Indiana got *less* money so long as the UAW got nothing.
And, just for the record, the bankruptcy court explained that the UAW and the U.S. Government was not receiving value for the claims they had based on debts incurred prior to the bankruptcy. Rather, they were receiving stakes in the New Chrysler based on value they were providing to that company after the bankruptcy was filed.
I might be missing pieces to the puzzle as well, but as I understood it, one purpose of the suit was to make sure that Indiana’s pensioners were to be at the front of the line as ‘preferred’ creditors, and that somehow the sale would relegate them to some other place in line.
That was definitely the rhetoric going around. But I think it’s more spin than truth, and it was based on the fact that certain junior creditors of the pre-bankruptcy company (the U.S. Government and the UAW, particularly) were also going to be creditors of the new company based on new value provided (e.g. the U.S. Government providing an additional $6 billion in transition funding and the UAW agreeing not to strike for 6 years and to provide labor to the new company under particular terms.)
But, it’s not like there was a fixed pool of $10 billion ready to go to the creditors and the Government stepped in and redirected some of that money to junior creditors.
The liquidation value was something like $1 billion, and all of that would have gone to senior creditors.
The Fiat sale value was something like $10 billion, but the Lender in this case was the U.S. Government which was only willing to fund the transaction under the terms stated – $2 billion to senior lien holders, a percentage stake for itself, a percentage stake for the UAW, and a percentage stake to Fiat. In return, the U.S. Government funded the transaction, Fiat provided certain technology to the new company, and the UAW would provide labor under certain terms.
The trick here is that the U.S. Government, like any lender of last resort, was not obligated to provide the restructuring loan under alternate terms. And there was, to my knowledge, no alternative to either liquidation or the Fiat deal as dictated by the U.S. Government as lender.
(Now, there is certainly a political policy argument about whether the U.S. Government should be lending this money. But, that’s not really an argument for a creditor in bankruptcy. I think they have to deal with the U.S. Government under its own terms — much like if the creditor is dealing with a business lender that’s making a poor business decision. The creditor probably doesn’t have standing to challenge the business decision of the lender. The lender has to answer to its shareholders.)
Another wrinkle I had missed, picked up on by the Post’s Steven Pearlstein:
Did Mourdock really say he’d accept $1.5M more, then spend more than $2M to try and get it?
That’s the kind of scenario (minus a few zeroes on either side of the equation) where I have the conversation with my client that goes something like, “I love working for you, and I love getting paid; but, between you and me, you’re better off not wasting your money.”
In light of the Post’s quote, the whole thing makes no sense to me. Looks like a political ploy.