Sunday, October 09, 2005

The Big One - Delphi

As Chriss predicted was inevitable, privately as much as four months ago, publicly here on Sept. 29, Delphi has filed bankruptcy. On its own, it is a huge bankruptcy, one of the largest in history: $22B+ in total debt. But when you factor in what this does to GM, it becomes the pivot point for the third, and perhaps final, American industrial restructuring. The derivatives market tells the picture pretty clearly. Credit default swaps on GM are up 38% since 2 months ago, and are quite a bit higher than Ford's. They'll go even higher this week, probably surpassing the first post-junk spike earlier this summer. I go one better than Chriss, I predict a GM bankruptcy by end of Q2 '06.

Also, a final note. As a creditor, I'm absolutely sick and tired of C.11's being used to fluff up executive pay. Delphi wants about 600 executives to get a 10% stake in the reorganized firm. They want a 10% stake in the company they drove into the ground? The "necessary to the reorganization" line on talent in an 11 is nauseating. I bet I could look at Delphi's marketing budget right now (and I will) and cut out over a $100M in fat. Sure thats a drop in the bucket, but I see no reason to reward the guys who continue to charter jets, attend formula one races, and promote lavish executive golf weekends all on the company dime while they stiff the bill on the debt that pays for all of it. They fucked up. Problem is, bankruptcy judges in the US are such pansies they'll never sit on a debtor for this. They just want a fat docket and the prestige that goes with it. It seems creditors are more organized this time around, but its gonna be one helluva fight.