Non -TARP Chrysler Lenders: "Sale Plan Unconstitutional"

This filing is a must read…it is only 11 pages, please read it.

All politics aside, this is serious stuff and the case has a huge effect going forward. IF, the government is allowed to redistribute the capital structure in a Chapter 11 proceeding as it sees fit, then the “contract” debtholders hold in purchasing seniority is no longer valid. If that is true, then the lending costs and availability of credit for all but the strongest institutions are both in for stunning negative changes. If “senior” debt instruments can now be treated equally with equity and subordinate debt, then why hold senior at an lower interest rate?

To now make up for this lowered safety, either the interest rate must now go up dramatically OR the debt will simply not be purchased. Both are very adverse for those issuing debt.

Do I care about Chrysler? NO. What I do care about is laws we have in place being respected and enforced. Would you buy senior debt in a troubled company knowing there is a case in which it’s place in the equity structure could be erased? There currently is debt in troubled companies I am looking at BUT now am not sure of the rules. If I do not know what the rules are, why would I even look at it?

This case has ramifications far beyond this group of lenders. For this reason, it bear very close watching.

From Page 8

The sale of assets by the Debtors to New Chrysler is not a sale that was
negotiated by independent parties at arm’s length. Rather, it is a sale that was orchestrated entirely by the Treasury and foisted upon the Debtors without regard to corporate formalities, the fiduciary duties of the Debtors’ officers and directors or the other important checks and balances typically found in good faith sales. Indeed, well before the filing, the Debtors had ceased to function as an independent company and had become an instrumentality of the government.

President Obama, in his public statements, made it clear that the Debtors would be required to pursue the sale transaction with Fiat and ordered the Debtors to cease all efforts to pursue any other transaction. Both actions are clearly inconsistent with the requirements of a good faith sale. And, the government exerted extreme pressure to coerce all of the Debtors’ constituencies into accepting a deal which is being done largely for the benefit of unsecured creditors at the expense of senior creditors. Under the circumstances, the sale transaction does not pass muster under section 363(n), let alone section 363(m), and New Chrysler simply cannot establish that it is a good faith purchaser in connection with the proposed sale.

FULL FILING:
Chrysler Non-TARP Lender File Objection

Disclosure (“none” means no position):