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May 27, 2009
The Union's Pyrrhic Victory Over Capitalism
For those companies that caved in to the outrageous Obama Administration bailout plan which rewarded the UAW at the expense of the bondholders, the market noticed and is exacting its price. Dena Aubin reports for Reuters:
NEW YORK (Reuters) - Scores of companies are being punished in the bond market as the Obama administration's policies on General Motors and Chrysler LLC create new risks for creditors, a veteran bond strategist says.As GM teeters toward a bankruptcy filing and Chrysler attempts to restructure in bankruptcy court, the Obama administration is offering most of the recovery value of those companies to "a favored political class, in this case the United Auto Workers, leaving creditors with very slender debt recoveries," Christopher Garman, founder of Garman Research in Orinda, California, said in a report released late on Friday.President Barack Obama and a more tightly Democratic-controlled Congress were sworn in January.To gauge whether those cases have made debtholders wary of other companies with so-called favored political classes, Garman compared spreads, or bonds' extra yields over U.S. Treasury yields, for companies with collective bargaining agreements with the high-yield bond market as a whole.While the two performed in line with each other since 2003, they diverged sharply in February, with spreads on companies with organized labor gapping nearly 11 percentage points higher than the market as a whole, according to Garman's research.
Hat tip: Rick Ballard