If America's third-largest automaker goes into bankruptcy, there will surely be plenty of blame and finger-pointing going around. But with labor, the secured creditors and Fiat SpA apparently all signed on to
make concessions to restructure Chrysler LLC outside a Chapter 11 bankruptcy filing, it looks like hedge funds are set to play the villain's role in this drama.
With the clock ticking, secured lenders composed of a group of hedge funds turned down a government offer of $2.25 billion in cash in exchange for forgiving their first-lien debt, marking what may be the last chance to restructure Chrysler outside of bankruptcy, an administration official told
Reuters.
The Treasury Department has told the lenders, 46 in all, that accepting $2.25 billion in cash to eliminate about $6.9 billion in secured debt by Thursday's deadline is the only way to avert the bankruptcy. The agreement has been on the table since at least Wednesday, but couldn't be finalized because of lender opposition.
President Obama is expected to hold a news conference on the situation at noon, but an administration official's comments give an indication of where initial fingers will be pointed.
" '[Hedge funds] failure to act in either their own economic interest or the national interest does not diminish the accomplishments made by Chrysler, Fiat and its stakeholders nor will it impede the new opportunity Chrysler now has to restructure and emerge stronger going forward,' the official told the news service." Here's what Obama told an audience in St. Louis, according to Automotive News:
" ' We don't know yet whether the deal is going to get done. I will tell you that the workers at Chrysler have made enormous sacrifices -- enormous sacrifices -- to try to keep the company going. One of the key questions now is, are the bond holders, the lenders, the money people, are they willing to make sacrifices, as well? We don't know yet, so there's still a series of negotiations that are taking place.' "Is it fair to label hedge funds as the villains here? After all, they lent the money to Chrysler in good faith, and a $4.7 billion write-down is tough for anyone to swallow. Additionally, Sandra Mayerson, a bankruptcy attorney at Squires, Sanders & Dempsey LLP, tells The Deal that hedge funds don't have that much to lose in letting the situation work itself out in court either.
