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Chrysler-Fiat deal set,
bankruptcy near
Deal includes worker concessions,
government stake

Updated: Thursday, 30 Apr 2009, 12:35 PM EDT
Published : Thursday, 30 Apr 2009, 11:59 AM EDT

WASHINGTON (AP) - Chrysler LLC and Italian automaker Fiat have reached a deal for Fiat to take an ownership stake in Chrysler, which will enter bankruptcy "almost immediately," senior White House officials said in a conference call with reporters.

President Barack Obama says he supports Chrysler's decision to seek bankruptcy protection and that its looming partnership with Fiat will save one of America's "most storied automakers."

Obama said he believes the bankruptcy filing will put the struggling company back on its feet and that the process for recovery will be relatively fast.

During an appearance at the White House, Obama said that "the necessary steps have been taken" to give the company "a new lease on life."

Obama predicted that General Motors, as well as Chrysler, will "come back" and said he wants to see Chrysler recapture the place it had in society at a time when it was "a pillar of our industrial economy."

Obama said the partnership with Fiat gives Chrysler a chance to "not only survive, but thrive," and that Chrysler will emerge quickly from bankruptcy as a stronger, more viable company.

In a conference call with reporters before the noon announcement, senior White House officials called the impending bankruptcy "surgical," and stressed that the process is expected to happen quickly.

The deal includes a loan from the U.S. government, which will own part of Chrysler. The company is set to get a new board of directors, some of whom will be named by the government, the senior officials said. Workers have made concessions as part of the deal.

Owners of Chrysler vehicles "will have their warranties honored," the officials said. The automaker will reduce the number of dealers it has but there are "no immediate plans" for any workforce reductions, they said. GMAC will step in to finance new car sales.

The senior officials said that broadly speaking, suppliers and dealers will continued to be paid "in the ordinary course" while Chrysler is under bankruptcy protection. The nation's sixth-largest cluster of auto suppliers is in West Michigan.

The bankruptcy option became front-and-center after the automaker and the U.S. government failed to come to an agreement with a group of Chrysler's creditors.

Chrysler is expected to file for Chapter 11 bankruptcy protection in New York. The senior officials said the government is not interested in being a lender or an equity stakeholder in Chrysler or any automaker for longer than is absolutely necessary.

LINK:Chrysler-Fiat deal set, bankruptcy near
 

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Chrysler will file for Chapter 11 bankruptcy


2009-04-30 16:34:49.0

WASHINGTON -

Chrysler will file for bankruptcy after talks with a small group of creditors crumbled just a day before a government deadline for the automaker to come up with a restructuring plan, President Barack Obama said Thursday.

The Obama administration said it had long hoped to stave off bankruptcy for the nation's third largest automaker, but it became clear that a holdout group wouldn't budge on proposals to reduce Chrysler's $6.9 billion in secured debt. Clearing those debts was a needed step for Chrysler to restructure by the Thursday deadline.

Chrysler will file for Chapter 11 bankruptcy protection in New York, giving Chrysler time to galvanize a partnership with the Italian car maker Fiat Group SpA. The government, which has already poured $4 billion in loans into Chrysler, would provide up to $8 billion more to carry the company through bankruptcy, said senior administration officials speaking on condition of anonymity. The government will also help appoint a new board of directors.

The deals give Chrysler "a new lease on life," President Barack Obama said.

"This is not a sign of weakness," he said. "I have eery confidence that Chrysler will emerge from this process stronger and more competitive."

Under bankruptcy, Chrysler would still sell cars and the government would back its auto warranties.

The officials, speaking on condition of anonymity because the terms of the bankruptcy had not yet been released, said there would be no job losses or plant closing due to the Chapter 11. But it will be up to Fiat and Chrysler to decide whether to restructure the steadily shrinking company.

In Ohio, Chrysler has a strong presence in the Toledo area, where the company has 1,800 employees at an assembly plant that makes the Jeep Wrangler and Liberty along with the Dodge Nitro. Another 1,000 people work in suburban Perrysburg at a Chrysler plant that makes steering columns and torque converters.

The automaker's only other Ohio plant is in Twinsburg near Cleveland where about 1,250 workers make hoods, side panels and roofs.

Obama said Chrysler Financial, the arm of the company that makes loans to buyers and to dealers to finance their inventories, will be merged into GMAC Financial Services, once General Motors Corp.'s finance arm. The new GMAC will get government support.

The Treasury Department's auto task force has been racing in the past week to clear the major hurdles that prevented Chrysler from coming up with a viable plan to survive the economic crisis ravaging nation's automakers.

Along with the Fiat deal, the United Auto Workers ratified a cost-cutting pact Wednesday night.

Treasury reached a deal earlier this week with four banks that hold the majority of Chrysler's debt in return for $2 billion in cash.

But the administration said about 40 hedge funds that hold roughly 30 percent of that debt also needed to sign on for the deal to go through. Those creditors said the proposal was unfair and they were holding out for a better deal.

A person briefed on Wednesday night's events said the Treasury Department and the four banks tried to persuade the hedge funds to take a sweetened deal of $2.25 billion in cash. But in the end, this person said most thought they could recover more if Chrysler went into bankruptcy and some of its assets were sold to satisfy creditors. This person asked not to be identified because details of the negotiations have not been made public.

Fiat will obtain a 20 percent stake in Chrysler in return for giving the company access to its fuel-efficient technology, a move toward cleaner cars that the Obama administration thinks is critical to Chrysler's future survival. The company has committed to building Fiat cars in Chrysler factories, to be sold as Chryslers.

The bankruptcy will be filed under a section of the law that allows a company to shed bad assets and some liabilities. The administration expects it to last only up to 60 days.

Obama's auto task force in March rejected Chrysler's restructuring plan and gave it 30 days to make another effort, including a tie-up with Fiat. The company has borrowed $4 billion from the federal government and needs billions more to keep operating.

The UAW agreement, which would take effect May 4, meets Treasury requirements for continued loans to Chrysler Corp., and includes commitments from Fiat to manufacture a new small car in one of Chrysler's U.S. facilities and to share key technology with Chrysler.

Meanwhile, the Fiat partnership means Chrysler CEO Robert Nardelli could be out of a job. In an April e-mail to employees, he said that if the deal is completed, Chrysler would be run by a new board appointed by the government and Fiat. The new board, Nardelli wrote, would pick a CEO "with Fiat's concurrence."

Sergio Marchionne, CEO of the Italian automaker, told reporters earlier this month that he could run Chrysler. Obama said Wednesday that Fiat's management "has actually done a good job transforming their industry."

LINK:Chrysler will file for Chapter 11 bankruptcy - Examiner.com
 

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A Primer on a Chrysler Bankruptcy

May 1, 2009
A Primer on a Chrysler Bankruptcy

Chrysler is the first major automaker to file for bankruptcy and attempt to reorganize since Studebaker in 1933. The process can be complicated. Here is a quick look at how it is likely to play out.

Q. Will Chrysler cease to operate?

A. No. Chrysler is reorganizing under Chapter 11 of the United States Bankruptcy Code. The law allows companies to shed assets, restructure debt, cancel contracts and close operations that normally would have to continue running. Once they secure financing to leave bankruptcy, these companies are reconstituted as new legal entities.

Should Chrysler fail to successfully reorganize, it might turn to a Chapter 7 bankruptcy, which would mean a liquidation.

Q. How long will this take?

A. The Obama administration spoke of a “surgical bankruptcy” which it said could be completed in 30 to 60 days. It plans to use Section 363 of the bankruptcy code to sell assets, rid the company of liabilities and restructureits debt, creating a new Chrysler.

In reality, most bankruptcies take much longer. United Airlines spent more than three years under bankruptcy protection. Delphi, the auto parts supplier, has been in Chapter 11 since 2005. The bankruptcy by LTV, a steelmaker, took seven years to resolve.

Bankruptcy law changed in 2005 to give management of a company the exclusive right to draft a plan of reorganization for only 18 months. A judge can extend this period, which is called exclusivity, but creditors or potential buyers for a company can present a competing plan once that period expires.

Q. What happens to Chrysler dealers?

A. Chrysler is able under bankruptcy to cancel franchise agreements with its dealers, and the government said that will happen. Dealers can sue to block the action, but a final decision would be up to the judge. In the meantime, Chrysler would continue to provide dealers with vehicles to sell.

Chrysler Financial will cease making loans for Chrysler vehicles; GMAC, with support from the government, will provide financing for Chrysler dealers.

Q. What happens to Chrysler employees?

A. The White House said it did not anticipate any reductions in white- or blue-collar jobs as a result of the bankruptcy. However, Chrysler employees who are not union members do not have any job security. The company can ask a judge for an immediate pay cut for its salaried employees, and can announce job eliminations and close offices, just as it can outside bankruptcy,

Contracts covering members of the United Automobile Workers union and other unions will remain in force, until the company asks a judge to void them. U.A.W. members approved changes to their contract on Wednesday that presumably would mean the contract would stay in place.

But if the company asked for contracts to be terminated and replaced with terms it can more readily afford, the union would have a chance to respond in court. Negotiations would take place before any cuts were imposed. This process could take months.

Q. Are pensions and retiree health care benefits protected?

A. Companies have the right under bankruptcy law to ask to terminate their pension plans. If such a request was made, a judge would convene a mini-trial on the subject and hear both sides. If pensions are terminated, employees would still receive about one-third of their benefits through funding from the federal pension agency.

A company also can eliminate retiree health care benefits for non-union employees; they would subsequently be covered by Medicare. The U.A.W. and Chrysler agreed in 2007 to transfer responsibility for union retiree health care to a special fund, and the fund would administer those retiree benefits.

Q. What happens to Chrysler suppliers?

A. The White House said supplier contracts would remain in force, and it has created a program to provide federal help to parts makers. But in bankruptcy, supplier contracts can be canceled.

Chrysler can ask to cancel suppliers’ contracts and grant business to new suppliers, or seek lower rates. Suppliers would have the opportunity to negotiate with the company, just as they would in any business deal.

Article:http://www.nytimes.com/2009/05/01/business/01primer.html?hpw
 

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Three Lenders Caused Bankruptcy Filing

April 30, 2009

Chrysler to file for bankruptcy

Backed by $3.5 billion more in aid, Chrysler-Fiat to emerge in 30-60 days



WASHINGTON – President Barack Obama said today that Chrysler LLC will file a historic bankruptcy shortly, backed by up to $3.5 billion in new government aid designed to allow a Chrysler-Fiat partnership to emerge from court in 30 to 60 days.

The move also sends a strong signal to bondholders at General Motors Corp. that the Obama auto task force will act on its vow to take GM into a similar bankruptcy if they do not agree to swap their GM debt for shares in a reworked GM.

“The necessary steps have been taken to give one of America’s most storied companies a new lease on life,” Obama said.

Under Chrysler's bankruptcy, to be filed in New York in a matter of hours, the two automakers along with the UAW, Fiat and a majority of lenders will ask a judge to force a swap of $6.9 billion in debt for $2 billion in cash. The number of Chrysler dealers, now about 3,200, will be reduced through bankruptcy, but the administration officials did not say how many would be eliminated.

The agreement with Fiat will allow the Italian company to take a 20% stake in Chrysler that will grow as Fiat meets certain milestones, such as building new models in Chrysler plants. In addition to the $3.5 billion in financing to keep Chrysler operating while in bankruptcy, the government will also provide up to $4.7 billion for the new Chrysler once it emerges.

The Obama administration will also give additional aid to GMAC so that it can take over lending to Chrysler's customers and dealers from Chrysler Financial, which the government has deemed not viable. And the Canadian government will also provide new financial aid to Chrysler's operations in that country in return for 2 per cent in the new Chrysler.

The administration portrays its "surgical" bankruptcy of one of Detroit’s major automakers as just a legal chore, rather than the threat to Chrysler’s existence and the entire U.S. auto industry that Chrysler itself had described less than three months ago. Administration officials said Chrysler would operate as usual during bankruptcy, and that no additional job cuts were anticipated as of now.

The government will take a stake in the company and have a say in helping Chrysler and Fiat select a new board of directors. Chrysler Chief Executive Robert Nardelli has said he would step down after the partnership was cemented.

The decision to take Chrysler into bankruptcy came after three lenders -- Oppenheimer Funds, Perella Weinberg Partners, and Stairway Capital – balked at the original $2-billion offer, as well as an increase of $250 million from Treasury on Wednesday evening. The White House and Michigan’s congressional delegation pressed the holdouts to agree by 6 p.m. Wednesday, but no deal was reached.

“A group of investment firms and hedge funds chose not to make sacrifices. In fact they wanted to qualify for an injustified government bailout,” Obama said. “Some demanded twice the return other investors would have received.”

The lack of an agreement will not "impede the new opportunity Chrysler now has to restructure and emerge stronger going forward," the official said.

The U.S. Treasury had guaranteed the warranties of Chrysler and General Motors Corp. in part to assuage worries of customers who might think twice before buying from a bankrupt automaker. GM has a June 1 deadline to reach its own debt agreement or go through a similar move.

President Obama said Wednesday that “even if they (Chrysler) ended up having to go through some sort of bankruptcy, it would be a very quick type of bankruptcy and they could continue operating and emerge on the other side in a much stronger position.”

The UAW late Wednesday night overwhelmingly ratified cost-cutting changes in its labor contract that freeze wages for Chrysler's 26,000 U.S. hourly workers and slash more than $5 billion from what Chrysler was to pay into a retiree health care trust next year. That trust would own 55% of the new Chrysler, while Fiat would start with a 20% stake and the government would own another large portion.

Fiat will ratify its agreement with Chrysler today to share technology and engineering resources Chrysler and the UAW have valued at $8 billion to $10 billion.

The Obama auto task force had been pressing for GMAC LLC to step into the role held by Chrysler Financial. It was not immediately clear how much additional aid or regulatory help GMAC would receive for taking on the role, nor what would happen to Chrysler Financial.

Another lingering question: whether Fiat would sell vehicles under its own brands through Chrysler, even as the government pressed GM to cull its brands due to shrinking U.S. market share.

An administration official said the case would be filed in New York because the bankruptcy court there has extensive experience with large cases, including those of Delphi Corp. and Northwest Airlines.

LINK:Chrysler to file for bankruptcy | Freep.com | Detroit Free Press
 

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Chapter 11: Fact Sheet

Chapter 11: Fact Sheet

Posted Thursday, Apr 30, 2009, 12:55 pm in Employee News
What is Chapter 11?

Chapter 11 provides a company with time, under protection of the court, to reorganize its business and/or capital structure before having to meet the financial claims of its creditors. Unlike an insolvency proceeding or liquidation (Chapter 7), companies that file for Chapter 11 generally continue to operate their business with the goal of emerging from the process as a viable and financially healthier enterprise.

Why?

Companies file for Chapter 11 for a number of reasons, but generally they are seeking to protect their assets while trying to address financial problems - such as excessive debt, insufficient liquidity, unreasonable contractual obligations, and/or unmanageable liabilities. The process also is sometimes used by companies to sell assets free and clear of any obligations.

How?

Chapter 11 is a legal process by which a company files a petition with a federal bankruptcy court to reorganize under Chapter 11 of the U.S. Bankruptcy Code. The filing triggers a legal mechanism known as an “automatic stay,” which temporarily prevents creditors from taking action against the company to collect any monies or property they are owed from before the filing. The automatic stay also temporarily prevents lawsuits against the company from moving forward. The automatic stay can only be lifted with specific court authorization, which for most matters does not occur until the conclusion of the Chapter 11 proceeding.

How does it affect employees?

It is customary under a Chapter 11 proceeding for a company to receive court authorization to continue to provide employees with their regular compensation and benefits. In addition, U.S. federal law generally protects the funds in 401(k) savings plans and in qualified defined benefit pension plans from the claims of a company’s creditors.

How does it affect customers and suppliers?

A company that files for Chapter 11 generally is able to continue to meet its obligations to its customers as usual. Likewise, the company generally is able to pay suppliers for goods and services provided after the filing under existing terms. However, the “automatic stay” generally prevents a company from paying suppliers for goods and services provided before the filing without specific court authorization. For this reason, it is not unusual for many of a company’s suppliers to be creditors in its Chapter 11 proceeding.

How does a company emerge from Chapter 11?

The Chapter 11 process ends after the Court has confirmed a Plan of Reorganization, which provides for a distribution of the company’s economic value to its creditors and, possibly, equity holders. This plan is usually developed by the Company in conjunction with its creditors.

What is a Section 363 Bankruptcy?

Section 363 refers to the section of the U.S. Bankruptcy Code that allows a company to enter a court-supervised process to sell assets quickly as the best means to protect value for the benefit of all stakeholders. Unlike a typical bankruptcy proceeding, which can often take a few years to resolve, the advantage of 363 bankruptcy is speed. Through the 363 process, a company is able to emerge from bankruptcy in approximately 30 to 60 days.

Additional information on bankruptcy can be found at:

Chapter 11 - Bankruptcy Basics

Corporate Bankruptcy
 
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