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Government picks Chrysler's $7.5B USD tab

When it comes to saving Chrysler, the cost of trying to revive the troubled company may be a painful one, but it’s one that the Obama administration believes is essential to keeping the economy from a deeper plunge.  Chrysler recently declared bankruptcy.  Under the new plan, majority bondholders (mostly banks) will receive a major equity stake, as will the UAW, reportedly.  The minority bondholders who wanted a sweeter deal than either the unions or the majority bondholders will likely see their debt holdings wiped out.

Chrysler will emerge in a month or two from the Chapter 11 protection, and will try to continue its turn-around.  The first step will be the formal commencement of its partnership with Italian automaker Fiat SpA.  In order to try to make sure that the tie-up succeeds, the government is reportedly giving the pair a big gift -- reportedly forgiving Chrysler's $7.5B USD in loans.

Robert Manzo of Capstone Advisory Group first broke news when he suggested that he had knowledge of the talks and believed that the government would release Chrysler of its financial obligations. A $4 billion bridge loan was given to Chrysler in the closing days of the Bush administration, a $300 million fee on that loan, and the $3.2 billion in financing approved last week by the Obama administration to help Chrysler tackle bankruptcy.  A source in the Obama administration confirmed that Chrysler won't be repaying the loans.

In total, the forgiven debt will equate to approximately $24.50 per U.S. resident (or somewhat more per taxpaying citizen).  The government does hope to recover some of the bridge loan funding from Chrysler Financial, but it won't bother Chrysler about repayment.  Taxpayers do get an equity stake out of the deal, though -- 8 percent of Chrysler.  The government is counting on that equity stake to help repay taxpayers.

States the administration source, "The reality now is that the face value [of the $4 billion bridge loan] will be written off in the bankruptcy process.  While we do not expect a recovery of these funds, we are comfortable that in the totality of the arrangement, the Treasury and the American taxpayer are being fairly compensated."

The Canadian government will similarly forgive $900M USD in bankruptcy funding it is giving to Chrysler.  The U.S. government still expects Chrysler to repay the $4.7B USD loan it plans to give the company when it exits bankruptcy.  Chrysler has said it will also need $1.5B USD in additional funding by June 30, 2010.

Bob Corker, R-Tenn., a vocal opponent of the original Bush administration bailout states, "I've known for sometime that with the capital structure of the company and the situation it was in, we would not be paid back.  There were several secured lenders ahead of us, and they're not getting most of their money."

Meanwhile the government mulls over the problem of GM.  GM has been loaned $15.4B USD, thus far.  And with a possible bankruptcy filing looming, it may need even more funding to guide it through bankruptcy.  It similarly is unlikely to be able to repay its debt obligations, and these obligations will far eclipse those of Chrysler and will likely pose an even greater headache to Chrysler.



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Ignorance
By Murst on 5/8/2009 5:07:25 PM , Rating: 2
It truly is amazing how ignorant some people on these forums can be.

They're blaming Obama for deficits, yet Obama's budget hasn't even been approved yet. All current deficits are for the budget that was approved last year, by Bush. Yes, Obama has added additional spending to his planned ( unapproved ) budget. But that is for the fiscal year that starts in a few months, not right now. Furthermore, the deficit spending in Obama's proposed budget for next year has many one-time fees that will most likely not be included in the budget proposal next year. For example, you should be thanking the administration for approving additional money to help out state governments in their massive budget shortfalls this year. Otherwise, you'll be taking a lot of ( most likely unpaid ) time off next year b/c schools will be closing. Then again, most of you are probably too young to have kids so you don't take that into account.

The funniest thing is that so many of you believe that anyone other than Obama would have done a better job. You people really don't realize how much trouble the system was in. Will we see inflation in the future? Of course. I would not be surprised at all if we had the same inflation problems that existed in the early 80s. But that is better than a collapse of the financial system, which we were pretty close to.

The government losses on the bailout of Chrysler are really nothing to the losses we're taking on the bailout of AIG - which, by the way, was done under the Bush administration. Both of these bailouts are intended to soften the blow from the current downturn.

Sometimes you really need to open your eyes and realize that certain actions will happen regardless of what party controls congress or the white house.




RE: Ignorance
By FITCamaro on 5/10/2009 11:50:13 PM , Rating: 2
Obama's budget has been approved now I believe.

And what's sad is that even before it was, the money brought in by taxes was already spent. Obama approved the 2nd porkulus and the omnibus spending bill. Bush's only large contributions to the deficit for the current fiscal year is the bailouts to the automakers.

And I can think of plenty of people who would have done a better job than Obama. Jim DeMint, Mark Sanford, Mike Huckabee, Hypnotoad, the bunny who became pope on South Park.

It's not the federal government's job to spend taxpayer money to bail out individual states which are just as irresponsible with their budgets as the federal government currently is. And the stupid thing is, a lot of the "stimulus" money will add more debt to the state governments because of the strings attached. The money is only good for 2 years but accepting it requires the states to keep maintaining the same services after the federal money is gone. So unless the states massively raise taxes, after 2 years they'll have no way to pay for the programs.

Not only that but you have the federal government writing illegal legislation that seeks to circumvent the constitutions of states by saying that state legislators can go around governors if they decide to not accept the stimulus money.

But I guess you don't really care about any of that.


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