Chrysler Bankruptcy Process and Future Investment Returns

It is a concern that the White House is riding rough-shod over the Chrysler Bankruptcy and appear to be aided and abetted by the bankruptcy process. In this article, “Supreme Court ruling won’t block Chrysler merger” the two court decisions made yesterday are;

“In a late ruling, the Supreme Court ended two days of suspense by turning down a request for a stay of the automaker’s sale filed by a trio of Indiana pension funds and several consumer groups. The decision eliminates any further barrier to the sale, which now could happen as soon as today.

And

“Earlier in the day, the federal judge overseeing Chrysler’s bankruptcy case in New York ruled that Chrysler could proceed with plans to terminate the franchises of 789 of its dealers, effective immediately.”

Bankruptcy law has working well in the US for many corporations over the years. It has been a “trusted legal process” for helping companies out of a financial hole.

But now there is a great divide forming between those that believe it is okay to change the rules of bankruptcy for political ends and those that think it is wrong.

The process of bankruptcy appears to be being undermined.

Deals are being done at the expense of the bond holders. It’s easy to say 92% of bond holders “agreed” to the settlement. Would you stand up to the White House in such a situation after seeing the pressure that was applied to the US banks with the TARP program?

Do you think it is okay to ignore the 8% of bond holders who did not want the deal, regardless of the consequences?

Has the rule of law been sacrificed in the interests of expediency?

But Chrysler is not the main game. It’s all about GM and finding a way to get it through bankruptcy as quickly as possible. The political benefit from saving GM would be enormous. The economic cost of trying is enormous.

The perception for many people is that empathy is making its way into the law in a big way.

Tuesday’s ruling did not dwell on the legal questions in the case. Instead, it said that the parties challenging the sale had not sufficiently demonstrated the need for further delay of the sale. The ruling said, in part, that “denial of a stay is not a decision on the merits of the underlying legal issues.””

Shouldn’t we be concerned that “the ruling did not dwell on the legal questions in the case?”. Aren’t the legal issues what courts are all about and supposed to dwell on?

You see although the Indiana State Pension Fund may only lose about $6Mn, the decisions means that all bond holders in all companies could be ignored when it comes bankruptcy.

So why would any major investor corporate or private investor want to put their money into a large US corporation for years only to have that money taken from them because “they did not sufficiently demonstrate the need for further delay.” Since when was the issue about the sale?

Even though it sounds like a good thing, I think it will be bad in the long term as investors will have to seriously what protections they can expect in the future. If they don’t invest in large US corporations what then?

The jury is still out on this and it might take some time before anyone knows the outcome.

One Response to “Chrysler Bankruptcy Process and Future Investment Returns”

  1. Charles says:

    I think both Chrysler and GM are both in huge debt to the government are going to have to owe a lot of favors. A general rule I have is that you shouldn’t invest in businesses that are going to have to answer government favors.

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