Chrysler Pays Back Rescue Loan

Snip:
Chrysler paid back on Tuesday $7.6 billion in loans from the American and Canadian governments, paving the way for its Italian partner, Fiat, to increase its control over the Detroit carmaker.

The repayment of loans and interest owed to the United States Treasury and Export Development Canada is a significant milestone in Chrysler’s methodical comeback from bankruptcy in 2009.

 

So will they repay the bondholders who got raped during the bankruptcy proceedings?

 

The current Chrysler legal entity has NO obligation to repay old Chrysler's debt. As far as I understand... when bankruptcy took place, Chrysler's assets in the US, possibly Canada and maybe elsewhere were transferred from the bankrupt corporation to the new one. The old one was freed from existing debt and was no longer obliged to pay. The new corporation got the "rescue" money from US and Canadian governments.

Ford was in a similar cash flow trouble but apparently not as severe. The company had a ton of private money via various debt instruments. It must have been sufficient even during the cash crisis all US automakers suffered. From what a guide at the Rouge told me a few weeks ago, Ford still has tremendous amount of private debt to pay off. As long as business is good, creditors will probably not fuss much.

 

,,,,,,,,,,,,,,,,,,,,,,,

 

All those poor vendors. Damn shame is what it is.

 

it was not the venders the people that owned Chrysler stock or bonds that made up the bulk of the owner ship of the corp. Like most of the US is owned by china they have bought most of the US bonds that pay for the politicians that spend it like its water and obama wants it raised past 14.3 trillion not a good idea.

 

The people who really got screwed were the bondholders. People have historically invested in corporate bonds as safe, secure investments that would allow them to recoup most of their investment even in the event of bankruptcy. That included a lot of retired people seeking a safe place for their retirement money. Bondholders loan money to the company and are given preferential treatment in bankruptcy. The purpose for that is to encourage people to make such investments, knowing that it's a safe place to put their money.
So the Obama administration tells the Chrysler bondholders to pound sand while taking care of their buddies in the UAW and other Chrysler unions.
Do you think there is going to be much interest in buying Chrysler, Ford or GM bonds next time the auto companies need to raise some capital? Maybe "much interest" was a poor choice of words. There will be "much interest" involved in the sense that unless the companies are willing to pay "much interest", investors will turn up their noses. "So what?", you say? So what is that if Ford wants to build a new plant somewhere that could provide thousands of jobs, it will find it much more expensive to raise the capital to do any such thing, meaning it's less likely to occur.
That's what happens when the government decides to re-write the rules of the game.