So Maybe Chrysler Was Only Worth $2 Billion After All

The WSJ has the details on what the lenders who supported the deal were looking at.  In short, the "analysis suggests that the $2 billion that the Treasury Department agreed to pay to Chrysler’s largest lenders, including J.P. Morgan Chase, Citigroup and Morgan Stanley, to settle a total of $6.9 billion first-lien debt may have been the best deal those lenders could have gotten."

I told you this wasn't a big deal, despite what all those editorial writers kept say -- I'm going off to be smug now.

Comments

[Cyber Rainbow]

the bailout was wasted as far as I am concerned.

[David Yen]

Doesn't the WSJ article go to what the assets that were left with "Old Chrysler" were worth? It doesn't say what the assets that "New Chrysler/ Fiat" got were worth. Presumably New Chrysler cherry picked the assets and got the better assets.

[lmclark]

Steven, I agree with David Yen's comment. I don't think the WSJ article says much about the liquidation value of the "good" assets. And it doesn't say much about the value of the whole enterprise before the cherry picking.

I'm not getting the comments (seen elsewhere) about the "unprecedented speed" of the sale. How about Lehman Bros. sale of its best parts to Barclays on the second day of the case? And how about all the sales I see that never make the news that run on just as fast a track? And wasn't this sale in the works for months before the actual filing? Sorry, I just don't get it.

[Stephen Lubben]

I'll agree with the prior two comments that the WSJ article is mostly focused on the remaining assets and doesn't provide much context for the conclusion I quoted. I am presuming it was supported by the analysis -- but it is possible the conclusion was erroneously derived by the reporter.

[Lawrence D. Loeb]

Stephen:

As I commented on the wsj.com site:

I’m not sure why Chilmark’s analysis implies anything about the value of the $32+ billion of assets transferred to NewChrysler.

Clearly, given the values provided to the UAW, the Government believes that the value of the assets exceeds $10 billion (the UAW’s VEBA was paid $1.5 billion in cash, $4.25 billion in equity, and given a $4.587 billion note - without providing any assets to NewChrysler).

The $2.0 billion valuation was within the range of the initial uncontested liquidation valuation provided by Capstone (whose expert suggested that the Government consider settling for $2.5 billion, as evidenced by the emails published on the wsj.com site). This uncontested valuation was then reduced, but both valuations were computed on a liquidation analysis. The Supreme Court has ruled that the valuation methodology for secured assets should reflect how those assets are to be used after bankruptcy. The transferred assets are now part of a going concern (so the payment to the Estate should have been computed on a going concern basis).

Unfortunately, the urgency of the proceedings precluded any substantial contest of the Capstone report. Had the report been subject to the Court’s scrutiny (through the eyes of an examiner or an expert for the lenders) it is possible that the valuation conclusion would have been substantially higher.

[Eric Rasmusen]

So let's talk about the Old Chrysler assets. The article says they are worth 200 million dollars, except that it will cost $198 million to liquidate them. Isn't that crazy? Would the court really authorize that ratio of fees to assets?