By Tomoeh Murakami Tse
Washington Post Staff Writer
Tuesday, May 5, 2009
NEW YORK, May 4 -- A U.S. bankruptcy judge Monday approved Chrysler's request to begin using $4.5 billion in government loans, a key step in the automaker's plan to emerge quickly as a stronger, global company.
Judge Arthur Gonzalez's ruling came at the end of a day-long hearing during which attorneys for some of Chrysler's lenders argued that he should deny the request for financing.
In documents filed in U.S. Bankruptcy Court in Manhattan, the lenders, who hold a portion of the $6.9 billion in senior loans to Chrysler, objected to the transfer of the automaker's assets to a new company that will be jointly owned by Fiat of Italy, the United Auto Workers and the governments of Canada and the United States.
The lenders complained that the reorganization plan strips them of their property rights and that the proposed sales process has been tainted because it was dominated by the Treasury Department, which is taking "unconstitutional actions to help the United States address difficult economic times," they asserted.
"The Court should not permit a patently illegal sales process to go forward," the lenders' attorneys wrote in court papers.
The lenders, which include several hedge funds and other investment firms, were blamed by President Obama last week for preventing the government from reaching an out-of-court accord to reorganize Chrysler, the United States' third-largest automaker.
The group holds about 10 percent of Chrysler's secured debt. The government had offered about 33 cents on the dollar for their loans.
The rest of Chrysler's secured lenders, dominated by several large banks that have received government assistance in recent months, had supported the out-of-court deal, but it was not enough to keep Chrysler from filing for bankruptcy protection Thursday.
In a 300-page document filed Sunday night, lawyers representing Chrysler asked Gonzalez, a veteran judge who has overseen Enron and WorldCom cases, for a swift hearing that would allow it to reemerge as a new entity led by Fiat. Chrysler is asking for a hearing that would clear the way for a sale of assets to be held as soon as May 21.
However, Tom Lauria, a lawyer for some of the dissident lenders, said he had not had "meaningful" time to review the documents and Gonzalez agreed to delay a decision until 2:30 p.m. Tuesday.
During the court proceedings, Lauria was pressed by Corinne Ball, the lead lawyer for Chrysler, to reveal who his clients were. Lauria told Gonzalez that he would do so, but would likely request the names be kept secret because some of his clients had received death threats. Local police and the FBI have been contacted, Lauria told Gonzalez.
Some of the lenders that have been publicly identified include OppenheimerFunds and Stairway Capital, a hedge fund based on Long Island.
Lauria represents creditors who call themselves the ad hoc committee of "non-TARP lenders," those who have not received funding from the Treasury's Troubled Assets Relief Program.
He indicated in the crowded courtroom that the group believed it would get more than what the government had offered in a liquidation. The group has argued that their interests were not represented in negotiations by big banks that have accepted TARP rescue funds from the government. They have said that they were willing to compromise but that the government's offer was unfair because it forced senior lenders to take bigger hits than other lenders, inconsistent with long-held rules established by law.
United Auto Workers president Ron Gettelfinger told reporters at an event in Michigan yesterday that a union retiree health trust would quickly sell the 55 percent stake it is due to receive in the restructured Chrysler. The sale is intended to boost the health trust's funding ahead of its formal launch next year, he said, according to the Associated Press.
Gettelfinger also disputed claims that the UAW was getting a better deal than the secured lenders; the UAW, he said, is taking a risk because the stock is worthless today.
Among the slew of documents filed with the court Monday was a statement by Chrysler's bankruptcy adviser. Chrysler lost $16.8 billion last year and expects to lose $4.7 billion this year but believes it will be profitable by 2012, assuming the bankruptcy proceeding goes quickly, according to the filing. The company said in the filing it expects to start making money in 2012 and reach $3 billion in profit in 2016.
The bankruptcy adviser, Robert Manzo, executive director of Capstone Advisory Group, said the senior secured lenders would recover about 9 to 38 percent of their claims.
Manzo also said in testimony in court Monday that the government's bankruptcy financing for Chrysler, known as a debtor-in-possession loan, was junior to the $6.9 billion in the senior secured loans owed to banks and other lenders and stood a "low likelihood" of being repaid. In court documents, Chrysler estimates it will need $4.1 billion for financing during bankruptcy, which it expects to last nine weeks. Some experts have questioned that timeline as overly optimistic.
Staff writer Peter Whoriskey in Washington contributed to this report.