Chrysler on Pace for Swift Finish to Restructuring
Wednesday, May 27, 2009
NEW YORK, May 26 -- When Chrysler filed for bankruptcy April 30, restructuring veterans scoffed at the idea that such a big company could move through the process quickly, and industry veterans warned that the U.S. manufacturing base would be deeply disrupted.
But today, federal bankruptcy Judge Arthur Gonzalez is scheduled to consider a motion to sell most of Chrysler's assets to a new entity led by Italy's Fiat. The judge's approval would set up the automaker for one of the biggest and fastest bankruptcy proceedings of its kind.
"Given a company this size and this complicated an operation, a sale of substantially all of [Chrysler's] business in this short time frame is probably unprecedented," said Howard Seife, who heads the bankruptcy practice at Chadbourne & Parke.
The tactics are likely to be repeated by General Motors, which Tuesday reached agreement on key concessions from the UAW and failed to get a deal from its bondholders that would have kept it out of bankruptcy court. GM could file by Monday, the deadline set by the Obama administration for the automaker to restructure.
Chrysler has suffered few of the problems some predicted before it filed for bankruptcy. The process has resulted in only temporary setbacks to the nationwide network of suppliers, and sales have not plunged.
Experts said that's probably because many people view the bankruptcy as a temporary stop and because the federal government guaranteed car warranties. Preliminary reports from J.D. Power and Associates suggest that May sales were roughly on par with those of April.
Opposition from creditors that surfaced during the proceedings quickly evaporated, as Gonzalez wasted little time ruling against their claims. On Tuesday, a small group of Chrysler's senior secured lenders lost its battle to halt the sale, removing the last major hurdle to today's hearing.
Some restructuring experts said they had not fully appreciated the influence the federal government would wield over the process.
When Chrysler filed for bankruptcy, President Obama denounced a group of senior lenders who refused to accept the government's offer of 33 cents on the dollar. Obama portrayed them as selfish "speculators" and blamed them for sending the third-largest U.S. automaker into bankruptcy.
That day, the dissenting lenders said they numbered 20 organizations that held $1 billion of the loans. But under what they described as intense political pressure and public scrutiny, the lenders let up.
"I thought there would be a lot more organized opposition. But they fell by the wayside pretty quick," Scott Van Meter, restructuring expert and managing director of LECG. "The juggernaut that was launched against them was pretty effective. That's something we don't see normally in the bankruptcy world."
Indeed, many opponents thought their rights were trampled.