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Painful lessons for lenders in Chrysler debacle

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http://www.ft.com/cms/s/0/8ae2592e-3b31-11de-ba91-00144feabdc0.html?nclick_check=1


Mr Schultze is one of a group of dissident Chrysler creditors who was rebuked by the US president and other lawmakers for tipping the company into bankruptcy.


They also argue that the deal was orchestrated by the US government, which held sway over the majority of the other lenders, namely a group of banks, following widespread bail-outs.


Already, the verdict on Wall Street and in the conference rooms of investment firms round the country is that, at the very least, the situation raises questions about the solidity of time-honoured lending principles and parts of the bankruptcy code.


These rules dictate the pecking order for claims to be repaid when a company files for Chapter 11.


Worries about the sanctity of contracts and claims in the US could become a more widespread issue that makes less credit available and raises borrowing costs for companies in general.


“Many lenders make loans by being investors in US financial markets where contract law has been sacrosanct, and deviation from that could have far-reaching implications to the US economy.”


The situation exacerbates the unease that has held some investors back from participating in government schemes such as the term asset-backed securities loan facility and the public-private investment programme, which are aimed at boosting the availability of credit and removing toxic assets from banks’ books.


In the Chrysler case, the senior debtholders say they are taking losses while other unsecured creditors, such as the United Autoworkers Union, are getting paid even though the senior debt has a first lien on the company’s assets.


“People are pretty comfortable with the bankruptcy rules. What they are trying to do in the Chrysler situation is unprecedented,” says Jeff Manning, a managing director specialising in bankruptcy and restructuring at Trenwith Securities, the investment bank.


debacle 瓦解(がかい), 崩壊; (市場の)暴落; (突然の)失敗

rebuke 〈人を〉〔…のことで〕譴責(けんせき)する,非難する 〔for〕

sway 支配,統治

verdict 裁断,判断,意見

pecking order 序列

sanctity 高潔,敬虔

sacrosanct 神聖で犯すことのできない

exacerbate 〈苦痛・病気・恨みなどを〉悪化させる,激化させる

lien 先取特権

unprecedented 先例[前例]のない

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