TMA: Experts say Chrysler deal will drive up price of secured loans

By Caroline Salls

Pittsburgh, May 29 - The Turnaround Management Association said most turnaround experts feel the federal government's deal to pay Chrysler LLC's secured lenders roughly 30 cents on the dollar will drive up the price of secured loans and make them harder to obtain, according to a TMA news release.

According to the release, half of the 29 opinion leaders responding to a TMA Flash Watch Poll said the government proposal that elevated some unsecured creditors above secured creditors will result in higher-priced loans.

Another 35% predict that Chrysler's experience will make lenders less inclined to provide loans, according to the release, and companies obtaining these loans are likely to find more restrictive covenants attached, according to nearly 20% of respondents.

"It appears that a sizable percentage of restructuring professionals are concerned that credit, which is already tight, will become more difficult to obtain and more costly for those companies in restructuring mode," said Great American Group chief operating officer Thomas Pabst in the release.

Northwestern University professor James Shein said in the release, "There was an overreaction of some business people by claiming that this will be the end of secured lending.

"It will make lenders be more careful in valuing their collateral and that of lenders above them in the capital structure, but that trend has already started."

TMA said nearly 40% of respondents said the plan will have no effect because Chrysler's secured debt holders abdicated their position and voluntarily accepted the government cramdown.

Meanwhile, another 31% said the government's actions would set a precedent for avoiding the priority of payment rules established by Section 507 of the U.S. Bankruptcy Code.

"The government has used its power to broker a settlement for the greater good of the economy," TMA vice president of chapter relations and Hahn & Hessen LLP partner Mark Indelicato said in the release.

"However, if the bankruptcy process is going to continue to be the basis for corporate restructurings and liquidations, it must be perceived as fair and impartial."

Chrysler, an Auburn Hills, Mich.-based automotive company, filed for bankruptcy on April 30 in the U.S. Bankruptcy Court for the Southern District of New York. Its Chapter 11 case number is 09-50002.

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