Private equity and hedge fund money is all over Detroit, driving through the streets with trucks filled with gold. KPS Special Situations has put $23 million into Jernberg Industries. The car parts company has been bankrupt since 2005. The fund thinks that management can get out of number of obligations during its period in Chapter 11 and that labor may be more likely to “talk turkey” with the company in real trouble.
But, the deal is small potatoes compared to money going into bankrupt Delphi, the former auto parts arm of GM. Spinning it off turned out to be a fantastic idea. Highland Capital, which owns about 9% of Delphi’s shares, want to fund the company as it comes out of Chapter 11 to the tune of $4.7 billion. Two other funds are also trying to finance the parts company as well.
Unsecured creditors don’t like private equity walking in and possibly carving them out of getting as much of the money owed them as possible. Of course, the union does not want to loss more jobs. But, the money has to come from somewhere, and it’s “play ball, or else”.
Big labor, especially the UAW, have to renegotiate with the Big Three next year. Ford has brought in an extra $23 billion to fund its restructuring and has pledged a lot of its hard assets for the priviledge. But, if Ford’s share drops below the projected 14% of US vehicle sales or if the UAW makes things tough, all of the hedge fund boys may be willing to write Ford a check. And, put the screws to creditors and employees.
Not very nice people, but rich.
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