Chrysler Heard in Court for Bankruptcy
Posted: Wednesday, July 15th, 2009 at 2:33 pm
NEW YORK, New York—On Wednesday, Chrysler prepared to ask a bankruptcy judge for permission to sell the bulk of its assets to an organization led by Italy’s Fiat, in order to avoid liquidation.
Chrysler LLC’s attorneys are consistent with their reporting that the deal with Fiat Group SpA is the company’s only chance in avoiding being sold, but the agreement is still controversial, with over 300 objections. These objections to the sale are filed by the bondholders, the automaker’s dealers and former employees in addition to others.
Fiat may back out if the deal does not close by June 15.
Media, staff members, and attorneys all were in attendance in the packed Manhattan courtroom and also in the overflow room prior to Wednesday’s hearing. Boxes of documents and cases of bottled water were brought in preparation for the anticipated long day and perhaps night.
On Wednesday, General Motors Corp., a rival U.S.-based automaker, moved closer toward its own bankruptcy filing after a rebellion by its bondholders forced it to withdraw an agreement to swap bond debt for company stock.
Worldwide, automakers are struggling due to the global recession. This has caused the demand for new vehicles to decrease. GM and Chrysler have been especially affected by promises to cover the health and pension costs of tens of thousands of unionized retirees. In addition to upholding their promises, gasoline prices have consistently increased, reducing the demand for their low-mileage trucks and SUVs.
Chrysler’s attorney, Thomas Cullen, said during Tuesday’s hearing that the agreement with Fiat represents the best deal Chrysler could assemble in order to save itself, noting that they looked towards others, but received no help.
“The government was our bank of last resort,” Cullen said. “We desperately, desperately needed that financing or we would have needed to liquidate.”
When Chrysler filed for bankruptcy on April 30, the government estimated that the automaker company would come out of it within 60 days. Chrysler is expected to emerge from court protection closer to the halfway point of 30 days.
Days prior to the filing of Chapter 11 bankruptcy, Chrysler reached an agreement with most of its bondholders, in which they would received a combined $2 million in a deal worth 29 cents on the dollar. Some of the bondholders refused to support it, saying that as secured lenders, they were owed more. This group included Kurtz’s firm White & Case.
President Barack Obama singled out the lenders’ group as a reason why Chrysler was forced to file for bankruptcy protection. He said that they were seeking an “unjustified taxpayer-funded bailout.”
The group members later decided their company was too small to be effective and dissolved.
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