The judge overseeing the bankruptcy of Chrysler on Tuesday took a significant step toward allowing the sale of most of the automaker to Fiat, approving the bidding procedures advocated by the company and backed by the Obama administration.
Lawyers for Chrysler arrived at United States Bankruptcy Court in Manhattan on Tuesday.
The decision by the federal bankruptcy judge, Arthur J. Gonzalez, is a setback for a group of Chrysler creditors who have argued that liquidation of the company or some other transaction could yield greater value. These lenders, primarily investment firms, have said that the plan for the Fiat transaction ran afoul of bankruptcy law and would chill efforts by others to produce competing, potentially higher bids.
But Judge Gonzalez disagreed, saying, “The court concludes that the bidding procedures are appropriate and necessary.”
The judge’s decision was a victory for Chrysler and the government, which together argued that a speedy sale was the only way to protect tens of thousands of jobs and help along the American economy.
“It’s a very big first step,” said Howard Seife, the head of the bankruptcy practice at the law firm Chadbourne & Parke. “It’s clear that the company is moving down the road to a Fiat sale.”
The judge’s decision was the second blow dealt to the holdout lenders during a marathon hearing on Tuesday that began mid-afternoon and ended at 11 p.m.
Judge Gonzalez earlier ordered the disclosure of identities of the Chrysler creditors, who had said making them public could lead to retaliation. A lawyer representing them claimed that the creditors had been harassed, and some had even received death threats.
Judge Gonzalez, said that their lawyers had not presented enough evidence of risk and gave the creditors until Wednesday morning to reveal their identities. The primary evidence cited by their lawyers was a set of anonymous comments on The Washington Post Web site.
In a plan worked out with the Obama administration, several Chrysler assets would be sold to a new entity held by the United Automobile Workers union, Fiat, and the United States and Canadian governments.
Corinne Ball, the lead lawyer for Chrysler, argued that there was no time to wait to solicit additional bids for the company. “It’s not perfect, and no one is saying it is perfect,” she said of the sale proposal. “But we believe we’re doing what is appropriate and necessary.”
Thomas E. Lauria, the chief lawyer for the dissident creditors, said that any time pressure for the transaction had been created by Chrysler. The company’s strategy, he said, was to file for bankruptcy after it had run out of resources.
“Then you can do whatever you want to because there’s no time to do anything else,” he said. “I’m not sure that makes a lot of sense.”
Mr. Lauria argued that the proposed sale procedures would preclude other potential bidders, although Chrysler’s lawyers said that they will consider them.
Robert Manzo, an executive with the Capstone Advisory Group who is advising Chrysler, testified Tuesday that based on an analysis he conducted in January, updated with the carmaker’s current cash levels, the company could fetch as little as nothing if it were liquidated today.
The dissident creditors said Tuesday in a filing that they hold about $300 million of Chrysler’s $6.9 billion of secured debt.
Witnesses presented by Chrysler said that the company had explored forming a corporate alliance with another carmaker, such as General Motors and Nissan, over the past two years.
Lawyers for Chrysler, a committee for its unsecured creditors and the government did agree to extend the deadline for bids for the company’s assets. A sale would still take place by the end of May.
If the judge approves the sale, “the case is pretty much over,” Scott Van Meter, managing director of LECG, a consulting firm, wrote in an email message.
Full article and photo: http://www.nytimes.com/2009/05/06/business/06auto.html?hp