Judge Approves Chrysler's Plan For Selling Assets
Wednesday, May 6, 2009
NEW YORK, May 5 -- Chrysler won a major victory in bankruptcy court late Tuesday night, as a federal judge approved a key part of the automaker's plan to quickly restructure by selling most of its assets to Italy's Fiat.
Over strenuous objections from a small group of Chrysler lenders, U.S. Bankruptcy Court Judge Arthur Gonzalez ruled that a bidding procedure and schedule for the government-orchestrated sale of the company was "fair" and constituted a "clear and orderly process."
The ruling provides a critical boost to the government's goal of quickly reorganizing the automaker so as not to scare away suppliers and potential customers. Chrysler plans to use the bankruptcy process to sell its assets to a new entity jointly owned by Fiat, the United Auto Workers and the U.S. and Canadian governments.
The sale procedure approved by the judge sets a May 20 deadline for potential bidders to put in competing offers, with a hearing on May 27 to approve the sale. Chrysler contends that a swift proceeding was critical for it to remain a viable company, while the dissident lenders argued that the rushed timeline effectively shut out any bidders that might be interested in offering different terms.
During arguments Tuesday, Chrysler lawyers said the company's value was diminishing every day it was in bankruptcy proceedings, with its plants idled, suppliers and dealers in limbo, and consumer confidence in the brand wavering.
The ruling was the latest setback for the Chrysler creditors that had sought to block the company's sale. Earlier Tuesday, Gonzalez ruled that those lenders must reveal their identities by noon Wednesday, increasing the likelihood that the dissident debtholder group may diminish in size.
Lawyers for the dissident lenders had asked Gonzalez that the names of their clients, who received a televised reprimand from President Obama last week, be kept secret to protect them from threats of violence.
"Their preference quite frankly is to not get in harm's way," Tom Lauria, an attorney representing the lenders' group said at a packed hearing Tuesday. Lauria said some lenders had agreed to join the legal battle only if they could remain anonymous.
Lawyers for Chrysler and Fiat dismissed the threats after they were described in court as statements issued by politicians and anonymous "rants" posted on The Washington Post Web site. They said such comments should not be taken seriously. On Monday, Lauria told Gonzalez that some of his clients had received death threats.
"It's a bit ironic, your honor, that what Mr. Lauria is complaining about is anonymous postings on the Internet -- anonymity promotes irresponsibility," Hydee Feldstein, an attorney for Fiat, said to laughter in the courtroom.
On Monday, the dissident lenders failed to persuade Gonzalez to reject Chrysler's request to begin using $4.5 billion in government loans to fund operations while in bankruptcy.
In documents filed Tuesday afternoon, the dissident lenders revealed that their group was shrinking and together held just $300 million of $6.9 billion in senior secured Chrysler debt. In a statement last week, the lenders said they represented "about 20" organizations holding about $1 billion of the loans.
Chrysler filed for Chapter 11 bankruptcy protection Thursday after a handful of lenders holding some of the company's senior secured loans declined to accept the government's offer of 33 cents on the dollar. The dissident senior lenders contend that the sale illegally rewards junior creditors at their expense, despite laws granting "absolute priority" to the senior lenders. The UAW, for instance, would get the bulk of its pension payments, the dissident lenders said.
The group also contended that the proposed sale process and compressed schedule approved by Gonzalez are "designed" to prevent a competitive bidding process for Chrysler's assets and do not maximize the sale price. Under law, bankruptcy proceedings must ensure "highest and best" value in the type of asset sale at the heart of Chrysler's bankruptcy strategy.
The U.S. government, the dissident lenders said, is "relying on purported authority provided by TARP" and "foisted" the proposed sale upon Chrysler, which was forced to accept the deal and abandon attempts to pursue other options. Chrysler received $4 billion in government funds through the Troubled Assets Relief Program in December.
In court documents and testimony, Chrysler executives outlined the automaker's efforts in the years leading up to the bankruptcy filing to form alliances with various competitors around the globe, including Fiat, to establish a global footprint and offer fuel-efficient cars.
Among the discussions that fell apart were "Project Go Global" with Nissan and "Project America" with General Motors, Chrysler said. In the end, Chrysler executives said, only Fiat remained as a potential partner.