Unions may think they’re the big winners in the Chrysler bankruptcy as a result of the Obama Administration’s bullying of preferred debt holders, but the reality is many banks are re-thinking how they will finance companies with a large Union organization in the future.
Many investment bankers and bankruptcy experts are deeply worried about the precedent set by the Obama Administration’s preferential treatment of Chrysler’s unions at the expense of Chrysler’s secured debt holders last week. Under contract law, secure debt holders are first in line to be paid back during bankruptcy proceedings. The Obama Administration’s bullying and threatening of several large secure debt holders has many investors, investment banks and other financing arms seriously reconsidering whether or not they’ll provide capital to companies with unions in the future.
The Obama Administration’s bullying sends a clear signal that this left-wing liberal President will intervene on behalf of Union interests in the economy, as much as they feel like. “If you think the government will continue to intervene in the economy as much as they have an appetite to, and they’re going to come down on the side of the unions, then you’re going to be careful about getting involved with those companies,” one bankruptcy expert said.”
With the impending bankruptcy filing of General Motors (now “Government Motors”) in early June, Wall Street is closely watching how secure debt holders at GM and other bondholders are going to be treated by this Administration. After witnessing the bullying tactics exercised on Chrysler’s debt holders, GM’s investors may very well prefer to take their chances in bankruptcy court rather than accept the Obama Administration’s offer of five cents on the dollar for their debt.
How bad is it for GM? Their term loan lost seven points of value in just two trading sessions last week, after the Obama Administration bullied Chrysler. That sends a very bad signal for GM’s prospects to emerge quickly from any forced bankruptcy filing.
“It’s not a fair fight when they have all the money and all the guns,” one banker said about the government. “It’s very limited what we can do because we can get dragged through the press if we don’t cave to whatever outcome they (the Obama Administration) thinks is right.”
Editorial Note: My 2003 GMC Envoy Denali SUV is the very last vehicle I will *ever* buy from General Motors as a result of their accepting Government Bailout money via my hard earned tax dollars. GM should learn to build what the public wants, not what the Government demands. Inasmuch as Obama fired GM’s CEO and is now running the company, GM deserves what they get from this point forward.
As the UAW is now the major shareholder of Chrysler, be careful what you wish for UAW, you just may get it.