Eric Bradner has an excellent article in the Evansville Courier Press about Mourdock and the Chrysler deal. The one piece of new information is that Indiana, through its fund manager, had, shortly prior to Chrysler filing bankruptcy, agreed to a deal that would have given Indiana about $1.6 million more than what it received under the bankruptcy restructuring plan which Mourdock spent $2 million to fight.
Indiana invested in Chrysler when it was a distressed asset. Investing $18.3 million, Indiana bought bonds with a face value of $42.5 million – in other words, paying about $0.43 per nominal dollar of securities. Before the bankruptcy, negotiations were under way. Indiana’s fund manager agreed to a deal that would have gotten Indiana about $0.33 on the dollar or about $14 million. Other funds that were part of the pre-bankruptcy negotiation blew up the deal; holding out for something better. So, Chrysler went into bankruptcy. The offer got a little smaller with Indiana’s return shrinking to about $0.29 on the dollar or about $12.4 million.
Bradner’s article cuts Mourdock a little bit of slack. There was no evidence that the liquidation value of Chrysler was anything better than the $2 billion used by the bankruptcy court. Efforts to shop around Chrysler had been underway for a year or two prior to the bankruptcy, and there is no evidence that anyone wanted to pay anything more than the $2 billion. Saying, in retrospect, it could have been worth more is simply magical thinking.
Bradner has this to say:
The $2 billion offer was based on estimates of what Chrysler would have been worth had the company liquidated, selling off its assets with the money going to bondholders like Indiana. Though estimates at the time said the company could not be worth more than that, there will never be a way to test them.
I think it’s a mistake to, by the way this is phrased, place an additional burden on the $2 billion figure rather than point out more strongly that Mourdock’s estimate that it would be worth more has not met any burden at all, let alone one strong enough to rebut the burden already met by proponents of the settlement in court. But, that’s probably a nitpick.
So, what we have is an Indiana investment that was made for $0.43/dollar, an Indiana agreement to take $0.33/dollar, and a Treasurer spending $2 million trying to wreck an effort to save the domestic auto industry when the deal shrank by $1.6 million to $.29/dollar. Mourdock says that the acceptance of the deal by the fund manager was a mistake, that he never knew about it or sanctioned it. Donnelly’s crowd is quick to pounce on that:
“Mourdock says his fund manager went rogue by agreeing to an earlier, better offer,” Parker said. “That means one of two things is true: that Mourdock keeps such poor watch over Indiana’s money that a $14 million transaction doesn’t get his attention, or that when the manager was acting in the best interest of the retirees, Mourdock overruled him to act in the best interests of his political career.”
I also have to quibble with Bradner’s article when he suggests that Mourdock can credibly claim as a victory the Supreme Court’s order that eliminated the underlying legal opinions as future precedent. This was a Munsingwear order – based on the case having become moot; and cannot at all be regarded as commentary by the Supreme Court on the soundness (or lack thereof) of the underlying legal opinion. In fact, I believe the determination that the case was moot (and, therefore, that a Munsingwear order was appropriate) was another loss for the Indiana petitioners; as they were arguing that the case was not moot and could, therefore, that Indiana could continue to petition for relief. See my discussion here.
[The Indiana petitioners] seem to be hanging their hat on the thin reed of a Munsingwear order from the United States Supreme Court. Generally speaking, a Munsingwear order is issued when a case becomes moot before it can be subjected to appellate review. The idea is that the case is over, so the appellate courts aren’t allowed to review it, but you don’t want to have potentially bad law remain on the books simply because an appellate court doesn’t have a chance to offer correction to the lower court.
Bottom line is that Mourdock lost, and lost expensively in pursuit of a foolish, possibly destructive, cause. His argument that he was sticking up for secured creditors (you, know, “the little guys”) because the secured creditors got screwed. This argument fails right out of the gate because there is no credible evidence that there was any other available deal, including liquidation, where the secured creditors could have gotten more money. The only way secured creditors would have gotten more is if the federal government revised its own offer and spent more money bailing out secured creditors. Of course, even this bit of wishful thinking collapses as a possibility the minute Mourdock starts bellyaching about the federal government picking winners and losers.
I am always skeptical of potential clients who want to pursue a case “for the principle” of the thing. Civil litigation is a poor tool for vindicating principles. It’s about obtaining money to compensate an injured party for its losses. Assuming he’s rational, if Mourdock had been playing with his own money, he never would have pursued this litigation. Given the amounts involved, it was a lose-lose proposition. But, playing with taxpayer money for purposes of political grandstanding, I guess the move makes a certain, cynical amount of sense.
A well presented peice. No one ever ligitgates for Principle unless he is using principal that belongs to someone else. I have never seen any of my clients propound principle as a sucn a matter of driving importance as when their insurer or the state attorney general fronts costs of the litigation.
And I have never heard anyone complain when the government picks them as “winners.”
The race is still a dead heat. Mourdock’s own actions and statements condemn him in every commercial . All Mourdock can to is tie Donnelly to his voting record. You know, those “pre-existing conditions coverage” Donnelly wisely supported and that Mitt fantasized about in the debate.
Another problem I have with Mourdock’s position is that he believes more money would have been made for those holding the shares. He does not consider the jobs “liquidation” of Chrysler would have cost. On Home Avenue in Kokomo, the town outside of which I was raised and a street on which I lived for a while after undergrad, an old Chrysler plant sat vacant for years, later turned into a scrap facility. There was a Delco (yes, pre-Delphi) plant down the street. It is gone, the ground bare now. Those vestiges of the auto industry are unrelated to this specific deal. But they are emblematic of what had happened to the auto industry. Kokomo now has made a comeback, in large part due to funds infused to the auto industry by the Obama administration. Mourdock’s plans would have been short-term and cost jobs.
Couple things –
It was Mourdock’s duty to defend the bonds. Who knew US government would throw out all precedent ?
This is a stretch: “a Treasurer spending $2 million trying to wreck an effort to save the domestic auto industry”. Chrysler and GM should have gone bankrupt ages ago, and restructured their wages and pensions. Airlines go bankrupt and carry on.
It was Mourdock’s duty to obtain the best return on the bonds in the bankruptcy proceeding. Period.
Nobody. Because it didn’t happen. You’ve apparently been duped.