Frantic attempts to hammer out a deal with bondholders of $7B of Chrysler’s debt have not yielded any results. Though 70% of bondholders agreed to a debt-for-share or debt-for-cash swap, the last 30% are holdouts and are hoping they might get a better deal in court.
This may seem like a stupid and unrealistic move on their parts, because the poor horse that is Chrysler has been flogged way beyond death, but there is a method to the bondholders’ madness. They are currently being offered $2 billion in cash for the $7 billion in Chrysler debt that they hold. The bondholders figure they have little to lose because they are insured with credit-default swaps, and would get more money from insurance on the debt, than they would get from agreeing to the restructuring terms.
The bankruptcy proceeding may be Chrysler’s last opportunity to start with a cleaner, if not a clean, slate. Further government assistance is only forthcoming if an agreement with all creditors can be arranged. Otherwise it would amount to a wealth transfer from American tax-payers to, mostly foreign, bond-holders.
