Word: chryslers
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There's sad news from Detroit. Embattled Chrysler appears to have run out of rope, and has filed for bankruptcy - a course confirmed by President Obama at a Thursday press conference. The reason for the fast fall into Chapter 11 is that some of Chrysler's debt holders refused to take the cash settlement offer put together by Steve Rattner and the Automotive Task Force, the terms of which they found rather harsh...
Over at General Motors, CEO Fritz Henderson on Monday outlined a tough deal for bondholders as well, as the automaker scrambled to reduce its debt. The prospects for that deal are better than Chrysler's, but they are far from guaranteed...
...President: Maybe you should. One fact that's not getting too much attention in these prospective deals, both at Chrysler and GM, is that they are a bit short on fairness. Just consider the plight of American taxpayers who have so far loaned $15.4 billion to GM and another $4 billion to Chrysler. As part of the latest flurry of announcements, both automakers are signaling that (a) they are not likely going to pay most of the government loans back, and (b) they will need many billions more. (See TIME's top 10 Chrysler moments...
...same time, an important feature of the latest Detroit dealings is the lopsided favoritism shown the United Auto Workers (UAW). Take the Chrysler plan: Taxpayers were to trade in a $4 billion IOU (i.e., the government loans) for about 5% of Chrysler's stock. The UAW, on the other hand, was trading in a $4.5 billion IOU (related to its VEBA health-care trust for retirees) in return for 55% of Chrysler stock. Does that seem fair? A third group, the secured debt holders, were to trade in a $6.9 billion IOU and get $2 billion in cash - an amount...
...remaining party to any GM or Chrysler accord that averts bankruptcy will be the bondholders, who must agree on a reduction in the amounts owed. At Chrysler, bondholders made concessions on Friday, reducing Chrysler's $6.9 billion of outstanding debt for the second time. The bondholders had earlier agreed to accept $4.5 billion; on Friday they reduced the amount further, to $3.75 billion. A final deal with creditors much be reached by May 1. Among Chrysler's biggest bondholders are JP Morgan Chase, Citigroup, Goldman Sachs and Morgan Stanley. Even if Chrysler reaches a deal with its major creditors...