(H/T – Hot Air Headlines via Flip)
Remember what I relayed from Dad29 in what turned out to be Part 1 of what seems to be an ongoing series? Bloomberg reports that fund managers are now wary of lending money to unionized companies with unfunded pension liabilities because of what happened at Chrysler. Quoting George Schultze, head of Schultze Asset Management, one of the last Chrysler holdouts:
Lenders will have to figure out how to price this risk. The obvious one is: Don’t lend to a company with big legacy liabilities or demand a much higher rate of interest because you may be leapfrogged in a bankruptcy….
It’s terrible precedent. The sad thing is it impacts the manufacturing sector and the companies that have legacy liabilities directly. It will be nearly impossible, or much more expensive, to get secured financing for these type of companies.
I do want you to read the entire article. However, I can’t let the closing paragraph escape notice:
“People are starting to think ‘This is a very activist administration, even more than we counted on,’” said Martin Fridson, CEO of money manager Fridson Investment Advisors in New York. “If it comes down to the interest of creditors or labor unions, the administration is going to override what you thought you could do.”
What’s left of private capital for at-risk companies is about to exit stage left.
Not just “at-risk” companies–but unionized ones in general.
Unionized firms will find bonding to be more expensive–meaning that the ROI for the bonded project MUST be higher.
Theoretically, that could take unionized companies out of competitive positions–if they can’t obtain capital on competitive terms, they will die off.
Not likely to occur across-the-board, but it certainly will have an impact.