The White House has denied charges that Car Czar Steve Rattner threatened to use the White House press corps to run the reputation of Perella Weinberg if the investment firm continued to oppose its restructuring plan for Chrysler.
“The charge is completely untrue,” White House deputy press secretary Bill Burton tells ABC News’ Jake Tapper, “and there’s obviously no evidence to suggest that this happened in any way.”
That’s not quite accurate because this denial isn’t true. There is evidence. Yesterday we reported that Tom Lauria, Global Practice Head of the Financial Restructuring and Insolvency Group at White & Case, had made the charge on Detroit’s WJR-AM radio station. And the testimony of an extremely reputable person who was in a position ot know is, of course, evidence.
Perella Weinberg Partners, Lauria said, “was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under the threat that the full force of the White House press corps would destroy its reputation if it continued to fight.”
Lauria, who had represented Perella Weinberg when it was part of the group of investment firms that were resisting the administration’s Chrysler plans, initially did not name anyone in his charges that the White House threatened Perella Weinberg. According to ABC News, he has now said that the official who made the threat was Obama administration Car Czar Steve Rattner.
Perella Weinberg has issued a brief denial of Lauria’s account of its change of heart. “The firm denies Mr. Lauria’s account of events,” said a PW spokesperson who would not elaborate. This is exactly the denial you would expect from a firm that had caved into the administration’s threat.
More importantly, PW’s full statement (see update below) doesn’t actually deny that it was threatened by the White House. It simply denies that the threats are the reason it changed its position. Of course, they pretty much have to say this. They’d never say they chose the less-economically intelligent position because of political threats. This is a non-denial denial.
At the heart of the fight between the administration and the investment firms is a disagreement over how deep of a haircut senior creditors should take as Chrysler is restructured. The administration’s plan requires senior creditors to accept roughly 29 cents on the dollar on an estimated $6.8 billion owed by Chrysler. That plan has been accepted by holders of some 70% of the debt, including JP Morgan Chase, Citigroup, Morgan Stanley, and Goldman Sachs.
The opposition investment funds said they were willing to take 50 cents on the dollar from Chrysler for their debt. This proposal was rejected by the administration, which has forced to the Detroit automaker into bankruptcy to resolve the matter. The president demonized that opposition in his speech about Chrysler last week, claiming they were unwilling to make sacrifices.
The opposition investment funds argue that the government is unfairly subordinating their interests to those of junior creditors, including the autoworkers union and employee pension funds. Ordinarily, senior creditors are entitled to be paid in full before money flows down to junior creditors.
The extraordinary role of the White House in the restructuring Chrysler is complicated by the various bailout funds involved. The large banks that agreed to the administration’s plans are recepients of TARP funds, which may make them less likely to oppose the administration. The firm’s that are resisting have not received bailouts. In addition, Chrysler itself has received government funds and will receive even more under the administration’s plan.
Critics of the opposition firms, such as New York Times business columnist Joe Nocera, point out that while the firms might be entitled to the first slice of private money, there is no reason to make them whole during a bailout. This critique, however, doesn’t give enough weight to the argument that junior creditors–especially unions–will be less likely to negotiate in good faith with senior creditors if they believe they can get a better deal from the government.
Update: DealBook prints the full denial from Perella Weinberg.
Suggestions have been made that the Perella Weinberg Partners Xerion Fund changed its stance on the Chrysler restructuring due to pressure from White House officials. This is incorrect. The decision to accept and support the proposed deal was made by the Xerion Fund after reflecting carefully on the statement of the President when announcing Chrysler’s bankruptcy filing. In considering the President’s words and exercising our best investment judgment, we concluded that the risks of potentially severe capital loss that could arise from fighting this in bankruptcy court far outweighed any realistic potential upside.
We have a very specific mandate from our investors, and that is to carefully weigh investment risks and rewards. It is not our investment mandate to pursue political or risky legal campaigns with our investors’ money. This was our assessment of investment risk and reward, nothing else.
While we did and still do believe that the lenders would be justified in pressing their objections under conventional bankruptcy law principles, we believe a settlement would now be in the best interests of all parties in the context of avoiding a drawn out contested bankruptcy litigation proceeding, and we encourage our colleagues in the loan syndicate to pursue this immediately.