Posted by: jhamon | June 9, 2009

What Does “Secured Creditor” Mean?

A guest comment from my friend J.D. Davids, a CFO and VC entrepreneur, who asks:

What does “Secured Creditor” mean now that the Supreme Court has refused to hear the Chrysler case?

Since the High Court refuses to hear legitimate secured creditors in arguing their case against unsecured UAW preferences, the question is now: “Will anyone ever buy corporate bonds again?”

If so, what interest rate premium will corporations have to pay bond investors to offset the new environment of risk?  Bankruptcy law in the U.S. just got turned on its ear, and the cost of capital for U.S. Corporations just went up significantly, as bondholders have NO assurance of being able to enforce the concept of “secured creditor”.

Don’t let your eyes glaze over on this one, folks.  If lenders have no assurance of their lien position, there will be no capital formation – it will be a nuclear winter like none of us have ever seen.

J.D. points to a deeper analysis here.

The take away: we may very well be witnessing the end of American capitalism as we knew it.  No joke.

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