A bankruptcy judge speaks

The government takeover of General Motors and the UAW takeover of Chrysler, both engineered by the Obama administration, are signal events in the Age of Obama. Both were intended to circumvent the restructuring of the companies in bankruptcy where creditors’ rights would have been properly protected.

The long-running Delphi bankruptcy is now entangled with the saga of GM. This week the Delphi bankruptcy provided a useful contrast to the trampling of creditors’ rights in the GM and Chrysyler restructuring. A bankruptcy judge with the Dickensian name of Robert Drain pricks the balloon sent up by the government in the Delphi bankruptcy:

U.S. bankruptcy court Wednesday sided with a group of Delphi Corp. lenders who said a government-led plan to sell the auto-parts maker’s operations to a private-equity fund trampled on their rights.

Judge Robert Drain ordered Delphi to hold an auction and allow bids to challenge the government-brokered sale to Platinum Equity. “What’s so special about Platinum?” asked Judge Drain. “They’re just guys in suits. Why can’t the other guys in suits just pay more?”

The ruling is a victory for a group of hedge funds who stand to [lose] 80% or more of their roughly $2.5 billion in debtor-in-possession, or DIP, financing. The decision came on the same day that Chrysler LLC and Fiat closed their government-brokered tie-up over the objections of Chrysler creditors who argued they were treated unfairly by the Obama administration.

Thank you, Judge Drain.

Peter Lattman’s Wall Street Journal story on the Delphi bankruptcy explains the complicated relationship between the Delphi bankruptcy and GM’s reorganization. It also provides a glimpse into the government’s efforts to shaft the funders of Delphi’s debtor-in-possession financing, with more here on the “the curious case of GM financing the leveraged buyout of Delphi by Platinum Equity.”