Last week a group of hedge funds that had invested in Chrysler bonds “came out with guns blazing”, in hedge fund terms anyway, against the administration’s 33 cent on-the-dollar settlement offer, forcing the automaker into bankruptcy in spite of the president’s stern verbal appeals for everyone involved to make a “sacrifice.” But most observers agreed the holdouts were not likely to get much higher than 30 cents in any bankruptcy court, and some of them undoubtedly would have made a profit under the terms of the Obama deal, as this Bloomberg story points out: in March, after all, Chrysler bonds traded as low as 13 cents.
But the crusade was about so much more than money, the holdouts insisted. By Friday they had organized into a group they dubbed the “non-TARP lenders” — to differentiate themselves from Chrysler’s biggest creditors, four big banks which had, like all big banks, received TARP funding. One hedge fund manager, Geoffrey Gwin — who officially joined the holdouts Friday — even allowed a Wall Street Journal reporter to bear witness to the “turmoil” plaguing him as he wrestled with his own decision on the matter.* And a preliminary objection filed today in the bankruptcy court on behalf of the group calls the administration’s bankruptcy proposals “patently illegal” and “not proposed in good faith” in a “tainted sales process” that is “unconstitutional.”
So why are so few of the holdouts willing to go on the record upholding the Constitution on this weighty matter? Today in court the non-TARP lenders’ chief counsel Tom Lauria, pleaded with the court to keep his clients’ firm names sealed, according to the Detroit Free-Press.:
Lauria said while the group included two known members — Oppenheimer Funds and Stairway Capital — it had other members who wanted to remain unknown for some time longer.
“People who have been identified publicly of the first lien debt in this group have received death threats, which they perceived as bona fide,” Lauria said.
So it’s not only is it impossible to know how much money most of the hedge fund holdouts will be losing in the deal, it’s impossible to know who most of them are.
Lauria started playing the victim card last week, when he accused Obama car czar Steve Rattner of threatening to destroy the reputation of his then-client Perella Weinberg, whose Xerion Capital Management fund was at the time a member of the non-TARP lenders, if it didn’t back out of the group.
Why Rattner would focus on Perella, as opposed to the twenty other non-TARP lenders, is unclear: perhaps he knew Joseph Perella was on record as saying investment banking is not all about the money and needed to remember the importance of its relationships with its clients — a list that incidentally includes the F.D.I.C.. Perella, for its part, agreed to the government’s deal and disputed Lauria’s version of events — but don’t expect this story to be killed softly; the beleaguered hedge fund business seems more determined than ever to get the news cycle on its side.
*Gwin’s dilemma, in brief: he didn’t want to hurt families, but his own father had lost much of his pension in the Delta Airlines bankruptcy, so he didn’t think it was fair for Chrysler employees to only lose half of theirs.