Monday, May 11, 2009

None of the Chrysler Non-TARP Lenders hold any credit default swaps or hedges with respect to their holdings of Senior Debt

TO BE NOTED: From the Economics Of Contempt:

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Thursday, May 7, 2009

Chrysler Holdouts Own No CDS on Chrysler

A group of dissident Chrysler bondholders opposing the Obama administration's restructuring plan—which refers to itself as the Chrysler Non-TARP Lenders—disclosed this interesting fact in a court filing yesterday:
4. None of the Chrysler Non-TARP Lenders hold any credit default swaps or hedges with respect to their holdings of Senior Debt.
There are 9 funds in the group, holding a combined $295 million of senior Chrysler debt. So of the 20 holdout Chrysler creditors, we now know that roughly half of them owned no CDS on Chrysler.

Ryan Grim of the Huffington Post wrote a ridiculous article on Tuesday claiming that the holdout creditors may have pushed Chrysler into bankruptcy in order to collect payouts on CDS positions. Grim—evidently unaware that AIG almost never wrote CDS on individual companies—also claimed that the holdout creditors' CDS "were likely mostly issued by AIG." If you're ever arguing with someone about the financial crisis, and it seems like you're arguing about completely different crises, articles like this are the reason why.


And from Zero Hedge:

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Sunday, May 10, 2009

The Chrysler CDS Question

There has been some media and political debate lately over who if any entities may have profited from a Chrysler bankruptcy due to CDS holdings. As is often the case, when you get the mainstream media entering the ever so slightly more complex world of CDS contracts, many of the theories that develop have the same "logic" that is underpinning the current market rally.

A little due diligence in this case reveals relevant facts. The 2019 White & Case filing from the Chrysler docket has some critical disclosure:
4. None of the Chrysler Non-TARP Lenders hold any credit default swaps or hedges with respect to their holdings of Senior Debt.
In other words, the original Non-TARP holdouts, who owned $295 million of Senior Debt, did not have one Chrysler Credit Default Swap to their name. Thus, being unhedged they did not stand to benefit at all from a Chrysler bankruptcy and any claims that they implicitly or explicitly pushed the company into bankruptcy are nonsensical (granted the question stays open of whether they had CDS at any point in the past, although that can not be gleaned from the filing).

If there really are CDS holding culprits (and we really are talking LCDS here) they would be in the non-holdout creditor camp. But most likely, CDS holders did not have secured long positions in the first place, and bankruptcy beneficiaries would likely not be found anywhere in the list of secured or unsecured creditors. However, due to the LCDS nature of the holdings, this is a case unlike GM or the recent finance company bankruptcies. Now, in GM things will likely get more interesting, as DTCC reports that the company has roughly $33.6 billion and $2.4 billion in gross and net CDS exposure, respectively.

As for any allegations that AIG was a taxpayer funnel again, this is not the case, as AIG rarely if ever underwrote single-name CDS (and much less LCDS). Thus comparing the AIG gift to banks in early 2009 with fund flows in the Chrysler and, soon to be, GM bankruptcies is in the apples and oranges realm."

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