Chrysler Gets Judge's Approval for Asset Sale
Monday, June 1, 2009; 10:44 AM
NEW YORK, June 1 -- The lightning-speed journey of Chrysler through bankruptcy court has come to a conclusion, with a federal judge approving the government-orchestrated sale of the American icon to a new company run by Italian carmaker Fiat.
U.S. Bankruptcy Judge Arthur Gonzalez's ruling -- delivered in a 47-page opinion late last night -- effectively marked the end of an era for an American industry icon and represented a success for the Obama administration, which played a key role in crafting the company's restructuring strategy.
"The Sale Motion is granted in its entirety," Gonzalez wrote.
The judge's decision came 31 days after Chrysler filed for bankruptcy, among the largest in U.S. history. The speed at which the case has proceeded might set a precedent for General Motors, which followed Chrysler into bankruptcy this morning.
The case reached its high point last week when Chrysler urged Gonzalez -- in 34 hours of hearings over three days -- to approve its sale to an entity owned jointly by Fiat, the UAW and the U.S. and Canadian governments. More than 300 objections were filed, including those by lenders and dealers who tried to stop the sale by arguing that the process trampled their rights. Chairman and chief executive Robert Nardelli and other Chrysler executives, however, insisted it was the best and only viable option to avoid liquidation and save jobs.
Gonzalez's decision -- the 3,073rd document filed in the case -- sided squarely with Chrysler.
"Based upon the alternatives available -- and the only other alternative was liquidation -- the sale presented the best opportunity for preserving and maximizing the value of Chrysler's assets and the return to the various stakeholders," he wrote. "The sale would strengthen Chrysler for the long-term, benefiting all constituents, including U.S. taxpayers, employees, creditors, dealers, suppliers and secured lenders. In the end, our sole aim was to benefit everyone."
A prominent objector to the sale has been a small group of first-lien lenders to Chrysler.
Three Indiana pension and construction funds, which hold about $42 million of the $6.9 billion in senior secured loans, contend that their property rights were violated and that the 29 cents on the dollar they would recover under the terms of the government-orchestrated sale is less than what junior lenders would get. The UAW, for example would receive a 55 percent stake in the new Chrysler. The new entity would get most of Chrysler's assets in exchange for $2 billion, which would be distributed among the first-lien lenders. Fiat, which would manage the new Chrysler, is not putting up cash but will be providing technology for small, fuel-efficient vehicles, an area in which Chrysler has lagged its competitors.
Gonzalez ruled that the Chrysler was getting "fair value for the assets being sold" and that "not one penny" of the value of Chrysler's assets is going to anyone other than the first-lien lenders.
The Indiana funds promptly appealed the ruling this morning in U.S. District Court.
The U.S. government has provided more than $8 billion in loans to Chrysler, which will largely be forgiven. The government will provide an additional $6 billion to the new Chrysler.
The Indiana pension funds also contend that the federal government exerted undue influence over the sale. Gonzalez, however, said that the extent to which the government should be involved in protecting certain industries is "a political decision, and the Court does not express a view as to the governmental entities' involvement here."
"The economic reality is that no one was willing to lend other than the governmental entities," he said. "Further, in the current economic climate, the only alternative would be an immediate liquidation, which the evidence has shown would not bring a higher return to creditors."
Objections filed by many of the 787 dealers that will be eliminated are to be heard further in a hearing Thursday. But Gonzalez's ruling portends an uphill battle for the dealers.
The underlying argument of many opposing the transaction, Gonzalez noted, is not against the federal government's involvement but the desire to have it protect every stakeholder from economic loss -- not just those that the government perceives as being essential to the survival of a successful new Chrysler.
"For example, any dealership rejection that is approved will cause hardship to the particular dealership involved but may well be necessary if New Chrysler is to survive," he wrote. "These are the kinds of economic decisions that have to be made in every bankruptcy case."
Like Chrysler, GM is seeking a quick sale of most of its assets to a "new GM," in which the U.S. government will have a 60 percent stake. The transaction "will enable New GM to become an engine of opportunity and prosperity for countless Americans," GM's chief executive, Frederick A. Henderson, said in a 98-page court document filed this morning. The alternative, he said, was liquidation and a loss of hundreds of thousands of jobs.