In a recent article published in Barron’s, Andrew Bary describes the unequal treatment of creditors in the Obama plan to restructure the troubled auto manufacturer Chrysler. This article describes the new deal that President Obama has presented the secured and unsecured creditors of Chrysler auto manufacturer. The deal is intended to keep Chrysler out of bankruptcy by injecting liquidity into the company via government loan and the reduction of their liabilities. The reduction in Chrysler’s liabilities will come from the elimination of most of their bond-holder obligations.
The unions on the other hand are getting a bond from the government paying a fairly high interest rate and an equity position a large equity position in Chrysler. The order of lien priority with regards to the Chrysler deal is turned on its head. The generous recovery by the UAW-which is an unsecured creditor-of almost their entire claim leaves the banks and the U.S. government with highly uncertain recovery on the tax payer bailout money.
The unions on the other hand are getting a bond from the government paying a fairly high interest rate and an equity position a large equity position in Chrysler. The order of lien priority with regards to the Chrysler deal is turned on its head. The generous recovery by the UAW-which is an unsecured creditor-of almost their entire claim leaves the banks and the U.S. government with highly uncertain recovery on the tax payer bailout money.
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