No Runny Eggs

(H/T – DrewM., and I highly recommend reading the comments, at least if you are able to handle AoSHQ-standard NSFW language)

Bloomberg reports that the United Auto Workers are poised to accept a new contract that gives them a 55% stake in Chrysler, LLC. It also reports that Italy’s Fiat will initially get a 20% stake, which may increase to 35% if certain performance goals are hit, and that the Treasury Department will retain the other 10%.

The story, and others on the web, don’t mention where the 15% that may go to Fiat will be held initially, but I presume it will be the Treasury. Somehow, I doubt the Ram and Dakota pickups or most of the Jeep lineup surviving will be part of the conditions set by the Obama administration.

The UAW portion is a bit complicated. Chrysler is obligated to put $10.6 billion into VEBA, the union-run retiree health care plan. In exchange for $8.8 billion, Chrysler will give UAW said 55% stake, valued at $4.2 billion, and put in a $4.59 billion promissory note, to be paid off in installments until 2023 at a 9% annual interest rate.

That brings up the same question that I had yesterday with General Government Motors – what happens when it’s time to convert that 55% stake into cash? With most of the VEBA funding to be paid later, I expect that to happen sooner rather than later, sooner even than at GM. The Bloomberg story notes that, if the UAW manages to get more than $4.2 billion for its full 55% stake, the Treasury will get the difference. That begs the question of what happens in the likelier eventuality that the UAW doesn’t get $4.2 billion. Will the Treasury we the taxpayers pony up that difference?

Related to that, the Washington Post notes at the end of its story that one of the key players in the Obama auto task force that has come up with both the union-owned Chrysler and government-owned GM is Ron Bloom. Bloom was instrumental in creating the employee-owned United Airlines. The Post notes that didn’t exactly work.

One more item – The News Organization That Cannot Be Quoted™ (that would be the Associated Press for those just tuning in) reports that the biggest of Chrysler’s secured creditors, representing 70% of the secured debt, including JPMorgan, Citibank Chase, Goldman Sachs and Morgan Stanley, have reached a deal with the Treasury to, if all 46 secured creditors sign on, take $2 billion in cash to retire the $6.9 billion in secured debt they hold. I note that those 4 banks are among the 19 undergoing the TARP “stress tests”, and I wonder if the hold the Obama administration has on them had anything to do with them swallowing the 71% haircut the Treasury is demanding. After all, as secured creditors, they get paid first in the event of Chrysler’s liquidation, and it is likely that they would do far better than $2 billion.

Revisions/extensions (8:13 pm 4/29/2009, involves a major ReWrite™ of the first R&E after reviewing the WaPo item) – The Washington Post reports (H/T – Dad29) that, in the now-likely event of a bankruptcy, the final US Treasury stake would be only 8%, with the Canadian government owning 2%. The hedge funds which own Chrysler secured debt are resisting the cramdown because a recent Standard&Poor’s analysis of it reveals that what the Treasury is offering is at the bottom end of what they could recover in a bankruptcy.

That is a risky proposition because a bankruptcy judge could force the cramdown down the funds’ throats. I’m sure that the Treasury knows precisely which judge will get the case, and how that judge will act.