American and Canadian governments likely lost all their loans to Chrysler

One of the Chrysler advisors thinks the debtor-in-possession financing provided by USA and Canada won't be repaid:

Canadian and U.S. governments aren't likely to recover much, if any, of several billion dollars in bankruptcy loans to Chrysler LLC, an adviser to the embattled auto maker conceded yesterday.

Robert Manzo, an executive director with Capstone Advisory Group, told a Manhattan courtroom that there is a "low likelihood" the so-called debtor-in-possession financing would be repaid, since it is subordinate to almost $7-billion (U.S.) in Chrysler debt held by banks, hedge funds and other lenders. The loans are designed to help the company continue operating while it is locked in bankruptcy proceedings.

Just to show how little I know about the bond market, it's actually surprising to me that DIP financing is subordinate to some of the other debt. My impression prior to hearing this story was that DIP was senior or pari passu with other senior debt (after all, why would someone provide funding for a company in bankruptcy?).

This might set off a political storm in Canada but hopefully it won't. Without the government funding, you were looking at a total liquidation of Chrysler (liquidating Chrysler probably won't be that bad but if GM was liquidated it will severe negative effect on the economy.)


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