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Perhaps Indiana state Treasurer Richard Mourdock knows more about corporate finance and the future of the auto industry than the professional money managers and others who control 98 percent of Chrysler’s secured debt.
Or, as Chrysler said in a news release, the “Treasurer’s actions lead one to wonder if his motives are financial or political.”
Mourdock blamed the Obama administration’s brokering of the Chrysler bankruptcy for state investment losses, saying the deal that gives holders of secured Chrysler bonds 29 cents on the dollar will cost two Indiana state government funds and a separate teachers retirement fund more than $5.5 million. “It’s just flat-out wrong – it’s infuriating to me,” Mourdock said. “It’s not right that state policemen and teachers suffer this loss.”
The loss Mourdock detailed compares what the three funds are set to receive under the bankruptcy to the bonds’ full face value. But the investment funds were unlikely to receive full value for the bonds under any scenario. What Mourdock didn’t tell Hoosiers was that the funds he mentioned bought the bonds for an average of 43 cents on the dollar. All told, the three funds paid $17 million for the bonds and will receive an estimated $15 million, for a loss of $2 million, not the $5.6 million Mourdock alleged.
“Indiana’s pensioners should not be punished as a result of investment managers making historically sound decisions,” Mourdock said. “The managers did nothing wrong, but the portfolios have been victimized due to the actions of the federal government in the Chrysler bankruptcy.”
Whether buying Chrysler bonds was a “sound decision” is debatable. Mourdock, a Republican, failed to mention the state and the teachers retirement fund bought the bonds in July 2008, a time when the rest of the world’s financial communities knew Chrysler was in trouble. Daimler-Benz sold Chrysler the year before at a huge loss. Eight months before Indiana bought the bonds, Chrysler announced plans to eliminate 12,000 jobs and four vehicle models.
The role of the Obama administration in brokering the Chrysler deal is indeed unprecedented and marks a groundbreaking role for the federal government that should be debated vigorously. But if a stand was to be made against the deal, it certainly did not fall upon the state treasurer of Indiana to lead it when the three funds he mentioned hold a grand total of sixth-tenths of 1 percent of the automaker’s secured bonds.
Nevertheless, Mourdock filed legal action in attempts to block the bankruptcy deal. Fortunately, a judge rejected his efforts. Had Mourdock succeeded, Chrysler contends, the automaker would have been forced to liquidate, and the bondholders would have received at most 18 cents on the dollar – probably much less. In addition, the closing of its factories would have cost more than 4,000 jobs in Indiana alone.
Unlike General Motors’ bondholders, who are fighting to get a better stake in the proposed GM bankruptcy, 98 percent of Chrysler’s first-lien bondholders approved the bankruptcy agreement. They apparently believed that 29 cents for each $1 in face value of the bonds was better than the alternatives.
Chrysler asks whether Mourdock was driven by finances or politics. The real finances point directly to politics.
