Chrysler Gets Green Light for Federal Loans
Creditors Tried to Block Financing
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.