Chrysler Bankruptcy Could Cost Everyone More

[Toro]

The Obama administration's circumvention of the traditional bankruptcy process to favor his backers in the UAW may have unintended consequences that will raise interest rates for everyone, from mortgages to credit cards to auto loans, etc.

Chrysler Group LLC's restructuring is altering the bankruptcy landscape well beyond the auto industry.

Within days of a bankruptcy-court judge's approval of the government's plan to sell Chrysler to Fiat SpA and leave creditors with big losses, a lawyer in the bankruptcy case of the National Hockey League's Phoenix Coyotes invoked Chrysler in trying to push through the speedy sale of the team.

Should the judge approve that move and allow the Coyotes to be sold quickly, as Chrysler was, it could put some creditors out in the cold, leaving the NHL and other investors without the kind of input typically afforded by bankruptcy law.

Bankruptcy and financial professionals said such scenarios, if successful, could make investors demand higher interest rates on debt amid uncertainty over how they might fare should the firm encounter financial difficulties.

"The concern is that you have thousands of lenders, hedge funds, insurance companies who model their investments on rules and laws," said Stephen Lerner, a lawyer for a committee of Chrysler dealers. "How do these folks make investment decisions when they're faced with bankruptcy courts that appear to disregard the rules?"

To be sure, judges could reject such arguments as a short-term worry that likely will dissipate when the financial crisis ends.

The Obama administration's plan for pushing through Chrysler's restructuring has been criticized by some for going too quickly, which led to an end run around creditors, who got little say in the process. A few creditors objected in court, saying their rights were being denied, but they lost at all levels, including at the Supreme Court. ...

Creditors Cry Foul at Chrysler Precedent - WSJ.com