Court approves Chrysler's sale to Fiat

06 May 2009

The judge overseeing the bankruptcy of Chrysler LLC has taken a significant step toward allowing the sale of the ailing US automaker to Italian rival Fiat. Judge Arthur Gonzalez also 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.

Gonzales rejected arguments from a group of Chrysler lenders, who wanted the deal blocked. He said that the plan was a "fair and ordinary" process and stressed the "urgent need" for a sale.

The decision is seen as a victory both for Chrysler and for the US government, which has backed the plan. Chrysler has asked for permission for a quick sale of most of its assets to a new company held by Italy's Fiat, a United Auto Workers union healthcare trust and the US and Canadian governments.
 
A group of 20 lenders, including hedge funds, had said the plan would go against normal bankruptcy principles. The proposed procedures are not legitimate and do not maximise the sale price of the assets, the group's lawyers said.

The group objected to the way the restructuring benefits the UAW, which is an unsecured creditor, for the $10.6-billion Chrysler owes to its retiree healthcare fund. It claimed that Chrysler's proposed plan "inverts" the usual priority scheme, whereby senior secured creditors are paid in full first, followed by junior lenders, administrative claims, unsecured lenders and equity holders.

The lenders complained that the reorganisation 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. 

In addition, they have requested anonymity because they feel they are unfairly becoming the focus for a political backlash. In a court filing the lender group said some of their members have received death threats and have thus requested anonymity.