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May 1, 2009, 2:15 pm

Chrysler Takes First Steps in Bankruptcy Court

Deliberations on the fate of Chrysler shifted from Washington to a Manhattan courtroom on Friday as lawyers for the automaker sought to clear the way through bankruptcy, sell or transfer Chrysler’s operations, and keep paying its workers their salaries and benefits, The New York Times’s Zachery Kouwe reports.

Chrysler, the third-largest American automaker, filed for bankruptcy on Thursday after months of negotiations with regulators, unions and creditors fell apart when a small group of debtholders balked at the government’s final terms for an out-of-court restructuring.

Chrysler’s next steps toward settling with its creditors and completing an alliance with the automaker Fiat are taking place in the courtroom of Judge Arthur J. Gonzalez of United States Bankruptcy Court, who received a series of motions from Chrysler’s lawyers on Friday.

In addition to asking to protect employee wages, which total about $60 million, and basically keep operating, lawyers sought to keep Chrysler’s warranties in place, an effort to reassure current and prospective customers they can still safely buy Chrysler and Jeep products. Lawyers for the automaker said they wanted to move quickly.

“I don’t think that any American can doubt these are extraordinary times,” said Corinne Ball of Jones Day, Chrysler’s lead bankruptcy lawyer. “We have to move at a high speed.” Chrysler’s 22 plants in the United States are to be idled at the end of the day Friday, Ms. Ball said.

Judge Gonzalez granted Chrysler’s request to use its existing cash management system, which would enable the company to make transfers to other subsidiaries to keep operating. The judge was also forced to take a short recess after a woman collapsed in the crowded courtroom and paramedics were called.

Lawyers for various constituencies, including banks, car dealerships, hedge funds, parts makers and others have been working around the clock readying their arguments to make sure their interests are protected in court. Some of Chrysler’s secured creditors, who contend that they have been treated unfairly, are expected to file a motion soon objecting to the quick sale of the company to Fiat, according to people briefed on their plans.

Thomas E. Lauria of the law firm White & Case, who represents a committee of the secured creditors, declined to comment to reporters and did not raise any objections to the motions at the hearing. More than a dozen photographers and television crews swarmed lawyers and as others as they were leaving the courtroom after the hearing.

Chrysler’s chief financial officer, Ronald E. Kolka, and other executives quickly jumped into a minivan waiting outside the courthouse.

Ms. Ball and her team of lawyers from Jones Day attracted a swarm of reporters and photographers, who followed them down into a subway station after the hearing. As they stepped on the train, other riders began asking whether a celebrity had just come aboard.

Judge Gonzalez has experience with major bankruptcy cases, having overseen the reorganization of Enron in 2001, which set a record by filing for bankruptcy with $63 billion in assets, and WorldCom in 2002, which topped Enron with $107 billion assets when it filed.

The Obama administration spoke Thursday of a “surgical bankruptcy” that 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 restructure its debt, creating a new Chrysler.

But court documents filed by Chrysler in New York on Thursday showed that Chrysler’s re-emergence from bankruptcy could take until Aug. 28, or four months from now. Bankruptcy always contains some element of unpredictability, and the minority of debtholders who oppose the new arrangement could argue in court that the company is worth more to them in liquidation.

No light was shed at Friday’s hearing on how quickly the proceedings may play out.

Administration officials said they believed that it was highly unlikely that a bankruptcy court judge would side with the minority when those holding 70 percent of the debt had signed off on the arrangement.

Bankruptcy law allows management of a company the exclusive right to draft a plan of reorganization. A judge can extend that period of exclusivity for 18 months, but creditors or potential buyers for a company can present a competing plan once that period expires.

The United Automobile Workers union has agreed to accept company stock for 50 percent of what Chrysler owes its retiree health care fund. Most of the major debtholders, led by JPMorgan Chase, agreed to write down the debt owed to them by more than two-thirds.

But the remaining holdouts — including units of OppenheimerFunds, the Xerion Capital Fund of Perella Weinberg Partners and Stairway Capital Management — refused offers to buy out their debt, forcing a bankruptcy filing. They argued that they were falling victim to the willingness of their big banking partners in Chrysler to make concessions to a government that had helped bail them out as well. Perella Weinberg decided late Thursday that it would accept the government’s terms.

In its filing, Chrysler listed its 50 biggest creditors holding unsecured claims, meaning those that would have to get in line behind creditors whose debt is secured by collateral, like the company’s plants, brands and other assets. The unsecured creditors include its advertising agency, BBDO, and parts suppliers, like Johnson Controls, Magna International and Cummins Engine.

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 is likely to tell the court which suppliers it wants to keep doing business with, and which contracts it wants to reject. Suppliers could challenge the rejection of their contract, but most likely they would have to reach a settlement with Chrysler.

Article Link:Chrysler Takes First Steps in Bankruptcy Court - DealBook Blog -

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“First Day Motions”

Chrysler LLC Receives Court Approval of “First Day Motions”

Court Authorizes Continued Payment of Employee Wages and Benefits, and Customer Warranty Programs

Auburn Hills, Mich. , May 1, 2009 -

Chrysler LLC announced today that the U.S. Bankruptcy Court has granted the relief the company requested in a series of court filings known as “First-day motions.” The orders issued by the court will help the company continue to operate its business during the reorganization proceedings.

Yesterday, Chrysler announced that, as a result of the comprehensive restructuring plan agreed to by many of its stakeholders, it had reached an agreement in principle to establish a global strategic alliance with Fiat SpA. Chrysler filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in U.S. Bankruptcy Court to facilitate the restructuring and alliance.

First-day motions were filed to support Chrysler’s employees, dealers, vendors and suppliers, together with its customers and other stakeholders. The Court granted approval for the company’s request to continue payment of wages and health and welfare benefits to employees and contractors, and continue its customer warranty programs.

Bob Nardelli, Chrysler Chairman and CEO, said, “We accomplished a great deal today, including approval of certain First-day motions, which will enable us to transition into Chapter 11 and maintain normal operations as we move forward. Our focus now is on the next steps of this process, which we will pursue as efficiently and deliberately as possible.”

The Chrysler Chapter 11 case was filed on April 30 in the U.S. Bankruptcy Court, Southern District of New York. The case number is 09-50002, with the Honorable Arthur J. Gonzalez presiding. More information about Chrysler's restructuring is available at Client Home.

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