One of my nuggets of wisdom to bankruptcy/reorganization clients is if you’re going to get stuck with a secured position in bankruptcy, try and make sure you’re one of the little guys. The reason is smaller creditors in an existing secured class are often in the best position to cause trouble when a [somewhat] agreed-upon restructuring plan is taking shape. The bigger creditors (assuming they’re not legally ahead of you in line) don’t usually like trouble – they’re more apt to cave to various demands. I’ve seen a lot of small creditors get paid off (i.e. paid out in full) because the folks running the creditors’ committee just didn’t want to deal with their contentiousness.
Three Indiana state pension funds are now employing similar tactics in the Chrysler bankruptcy:
Three of Chrysler’s secured creditors are mounting a fresh attempt to thwart the carmaker’s Chapter 11 reorganisation on the grounds that it violates their legal rights and the US government’s authority under the Troubled Asset Relief Program.
The three – all Indiana state pension funds – are among a group of 46 creditors that had appeared to back away this month from efforts to derail the process under which a “new” Chrysler would emerge from bankruptcy protection by July 1. The new entity would be owned by a union healthcare trust, the US government and Italy’s Fiat.
Chrysler, with backing from the US Treasury, had offered its secured creditors just under 30 cents on the dollar to settle claims totalling $6.9bn. Four big banks, holding the bulk of the claims, accepted the offer following political pressure from Washington.
In the Chrysler case, being a big guy actually meant taking an equity position after subordinate claims, with aid from the government, bent them over a barrel and stepped in front. It doesn’t surprise me that a small creditor within the secured class is now kicking and screaming. And it won’t surprise me if we find out later the major holders put them up to it.
I’m just disappointed this tactic is now out in the open.
MG signing off (to figure out where my bankruptcy play book went)