And so the backpedaling begins. Bloomberg quotes an administration official who has stated that the D-3's bankruptcy might take as long as two years, not the two months President Barack Obama suggested as a target.
As expected, the only thing that will likely get done in the projected 60 day timeframe is the sale of good Chrysler to Fiat, which is now essentially a certainty, as the non-TARP holdouts have disbanded and there is no formal opposition to the 363 sale anymore. Yet the bad Chrysler that remains will be a melange of assets, liabilities, claims and contracts that will take years to sift through.
The 60 days projected by the President at an April 30 press conference announcing the automaker's bankruptcy only applies to a sale of Chrysler's best assets to a new entity, said the official, who can't be identified because the matter is confidential. Afterward, creditors would fight over unwanted factories and other assets to recover money, lawyers said.
“The unsold assets and liabilities may take years to sort out due to the complexities of resolving thousands of commercial, tort, future asbestos, dealership and employee claims ,” said Dewey & LeBoeuf LLP partner Martin Bienenstock, who has advised General Motors Corp. and Chrysler Financial on restructuring.
The bulk of assets left in the old Chrysler will be eight factories, valued by Chrysler at $2.3 billion. Those with claims against them include the U.S. government, provider of a $4.5 billion bankruptcy loan, and lenders with an unpaid balance of $4.9 billion on a secured loan.
“The secured lenders will stand in line behind the government when they try to recover more than the $2 billion they've been given in the buyout,” said Richard Hahn, co-chairman of the bankruptcy practice at Debevoise & Plimpton LLP, a New York law firm that isn't involved in the Chrysler case.
Due to the government being a provider of DIP financing, the ultimate recoveries to secured creditors could in practice be 0, as the potential impact of claims to bad Chrysler would dilute any potential recoveries to any entities behind the U.S. government.
And the pain does not stop there: already Chrysler suppliers are panicking to find out if they will be chosen to sell to the emerged good company. Bridgestone present a good example of the confusion that is currently running amock: the company filed an objection to the 363 sale, saying that if it is not hired by new Chrysler it will likely not get paid for tires supplied while Chrysler is in bankruptcy. Filings indicate that Chrysler will roll approximately $1.5 billion of a much larger pool of trade claims, leaving many vendors with a big fat donut. Among those getting the shaft will be claimants for unpaid bills, and recipients of future profit on canceled programs.
“[Rejected supplier claims] will possibly be lumped in with other creditors who wait for whatever can be made from the liquidation of whatever is left in bankruptcy,” Max Newman, attorney for unsecured creditors said. “It will take years for all of those assets to be disposed of.” It is these pari secured claims that will eat up any potential recoveries that had been initially offered to secured lenders.
In other news, while everyone is waiting for the FDIC to reply to the thousands of FOIA requests to disclose Perella Weinberg's compensation that have been launched from Zero Hedge, it would be curious to uncover just how big of a loss to P-W's Xerion hedge fund a 0% recovery on Chrysler loans will end up being. Now that the dust has settled after the whole Obamagate fiasco, it is time for investors to ask who, how and why they fought so hard for their interests, and why there is a dramatic drop in monthly performance for the April/May period, now that asset managers will have to remark their Chrysler loans much lower than before, compliments of succumbing to extortion.