Why Not Just Bind & Whip The Secured Creditors With Soft Corinthian Leather? Details of Chryslyer Deal as Unappealing as 1975 Cordoba!


It's official: Coming-outta-bankruptcy-protection Chrylser will be sold to Fiat under a deal supported (that is, insisted upon) by the U.S. government that puts traditionally front-of-the-line secured creditors back toward the end of the line when it comes to paying out (sorry folks, we had a full boxa donuts here just a minute ago but I guess all the customers ate them already!). The deal was challenged by some of those creditors, including the smart folks in Indiana state retirement and construction funds, who managed to turn 43 cents on the buck into 29 (psst: It's always a good time to buy, especially on a downturn!):

Under the agreement brokered in the days leading up to Chrysler's April 30 Chapter 11 filing, Fiat will receive up to a 35 percent stake in the automaker, in exchange for sharing the technology Chrysler needs to create smaller, more fuel-efficient vehicles.

The United Auto Workers union will get a 55 percent stake that will be used to fund its retiree health care obligations, while the U.S. and Canadian governments will receive a combined 10 percent stake.

Meanwhile, the automaker's secured debtholders would get $2 billion in cash, or about 29 cents on the dollar, for their combined $6.9 billion in debt. Some of the debtholders balked at the deal, saying as secured lenders they deserved more. The Indiana funds involved in the Supreme Court appeal hold about $42.5 million of Chrysler's $6.9 billion in secured debt. They bought it in 2008 for 43 cents on the dollar.

More details here.

Good luck Fiat! And in case you've been wondering why Fiat is interested in Chrysler in the first place, go here. Briefly, the deal costs them basically nothing in terms of cash but gets them back into a North American distribution network and a few other things that they can always walk away from. Chrysler, of course, gets its bailout (now and forever) from the governments of the U.S. and Canada and access to tech that will help them produce smaller, greener, blah-blah cars. And it forestalls liquidation.

Was the bailout of Chrysler, which lead to the gov't stake, constitutional? Damon Root points to the reasons why it wasn't. And Jacob Sullum explained why it wasn't going to matter anyway.

And here's Ricardo Montalban back in 1975, talking up the Chrysler Cordoba in strikingly weird yet mellifluous terms that range from simply nonsensical to ("I request nothing beyond the thickly crucial luxury of seats available in soft Corinthian leather") vaguely psychosexual ("It is on the highway where Cordoba best answers my demands").

In fact, the ad is a great homage to an (Gerald!) Ford era of spectacularly diminished expecations, as the narration emphasizes the benefits of settling for less in a high-inflation, high-unemployment, high-interest-rate America: "I grasp for nothing beyond the quality of Cordoba's workmanship….I have much more in this small Chrysler than great comfort at a most pleasant price…I have great…confidence, for which there can be no price." Comfort? Pleasure? Confidence? For free? Count me in, even though you can just by looking at those massively oversized single car doors that they'd be rusting out the hinges the minute you drive the thing off the lot.

Well, you know what Ricardo? You may be in the donut room of that great Five Star dealership in the sky, waiting for the salesaman to come back to you with his absolute best offer after the manager approves (and really, the rust-proofing is totally worth it, and the paint protection plan too), but down here on earth, Chrysler's comfort and confidence does come with a price: About 29 cents on the dollar. And even that might be too high.