[Part II – Testing the Limits of Section 363 Sales; Part III: Will the Absolute Priority Rule Kill the Sale?]

[6/09/09 Update:  See also my analysis of the Chrysler Sale Opinion (Part I) and (Part II).]

And so, with these fighting words by President Obama, Chrysler files for bankruptcy in the Bankruptcy Court for the Southern District of New York.  Clearly, we’re in uncharted waters as never has the Office of the President become so engaged in the restructuring of America’s largest businesses.  In supporting Chrysler’s filing, a visibly angry President Obama came out swinging, stating:

A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. I don’t stand with those who held out when everyone else is making sacrifices. They were hoping that everybody else would make sacrifices and they would have to make none. We will use the bankruptcy laws to clear away remaining obligations. It will be designed to deal with the last remaining holdouts. It was unacceptable to let a small group of speculators endanger Chrysler’s future by refusing to sacrifice like everyone else.

For his part, Congressman John Dingell, the longest serving member of the House, promised that “[t]he rogue hedge funds that refused to agree to a fair offer to exchange debt for cash from the U.S. Treasury – firms I label as the ‘vultures’ – will now be dealt with accordingly in court."

The secured debt holdouts didn’t see things quite the same, obviously, and issued this statement justifying their holdout, saying:

[W]e offered to take a 40 percent haircut even though some groups lower down in the legal priority chain in Chrysler debt were being given recoveries of up to 50 percent or more and being allowed to take out billions of dollars. In contrast, over at General Motors, senior secured lenders are being left unimpaired with 100 percent recoveries, while even G.M.’s unsecured bondholders are receiving a far better recovery than we are as Chrysler’s first lien secured lenders. We have a fiduciary responsibility to all those teachers, pensioners, retirees and others who have entrusted their money to us. We are legally bound to protect their interests. Much as we empathize with Chrysler’s other stakeholders, the capital is just not ours to contribute to their cause by accepting a deal that is outside the well-established legal framework and cannot be rationalized as being commercially reasonable.

So the petition is now filed.  Let’s examine the carnage:Continue Reading Chrysler Files Bankruptcy – Part I: Assessing The Financial Carnage