Judge OKs Chrysler-Fiat Deal
A federal bankruptcy judge late Sunday approved the sale of most of Chrysler's assets to Italy's Fiat, moving the American automaker a step closer to its goal of a quick exit from court protection.
Judge Arthur Gonzalez said in his ruling that a speedy sale - the centerpiece of a restructuring plan backed by President Barack Obama's automotive task force - was needed to keep the value of Chrysler from deteriorating and would provide a better return for the company's stakeholders than if it had chosen to liquidate.
"Any material delay would result in substantial costs in several areas, including the amounts required to restart the operations, loss of skilled workers, loss of suppliers and dealers who could be forced to go out of business in the interim, and the erosion of consumer confidence," Gonzalez wrote in his opinion.
"In addition, delay may vitiate several vital agreements negotiated amongst the debtors and various constituents."
As a result, the proposed sale must be approved in order to preserve the value of Chrysler's business and what is ultimately left for its stakeholders, Gonzalez said.
In a written statement, Mr. Obama lauded the court's decision, saying it gave Chrysler a "new lease on life" and would save "tens of thousands of American jobs."
Chrysler has maintained that selling the bulk of its assets to Fiat Group SpA is the only way it can avoid selling itself off piece by piece. If a deal does not close by June 15, the Italian automaker has the option of pulling out.
But a trio of Indiana state pension and constructions funds, which own $42.5 million of Chrysler's $6.9 billion in secured debt, aggressively objected to the sale, saying that it does not provide a big enough return for secured debt holders, while paying off unsecured stakeholders, such as the United Auto Workers union.
The Indiana funds bought their debt in July 2008 for 43 cents on the dollar. Their attorneys have said they would appeal the decision to U.S. District Court if Gonzalez approved the sale.
As part of Chrysler's government-backed restructuring plan, a UAW trust that will provide health care for hourly Chrysler retirees will receive a 55 percent stake in the new company, while Fiat will get a 20 percent stake that can ultimately grow to 35 percent. The remaining 10 percent of the company will be owned by the U.S. and Canadian governments.
In the days leading up to Chrysler's Chapter 11 filing, the automaker struck a deal with the majority of secured lenders to give them $2 billion in cash, or 29 cents on the dollar, to erase the $6.9 billion in debt. But some of the debtholders balked and the automaker was forced to file for bankruptcy protection on April 30.
Besides the Indiana funds, a group of over 300 Chrysler dealers slated to lose their franchises under the company's restructuring also objected to the sale. A separate hearing to address Chrysler motion to terminate 789 franchises is scheduled for Wednesday.
Objections were also filed by the automaker's suppliers, former employees and people with product-related claims against the company.
Meanwhile, General Motors officially filed for Chapter 11 bankruptcy protection Monday and will hand over a 60 percent stake in the company to the U.S. government. The once-dominant auto giant will slash 21,000 more jobs, close up to 14 plants and 2,600 dealerships.