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Tuesday, May 5, 2009

Judge approves sale of Chrysler

New York -- A federal bankruptcy judge late Tuesday greenlighted Chrysler's plan to review and accept bids for the automaker's quick sale of the company, despite an objection raised by a state agency over Chrysler's workers' compensation obligations.

U.S. Bankruptcy Judge Arthur Gonzalez said there is an "urgent need for the sale to be consumated" and said the bidding process "provides a fair and orderly sale process."

He also agreed to give potential bidders another five days -- until May 20 -- to bid for Chrysler's assets and pushed back the date to hold a hearing to approve until May 27 -- one week behind the initial plan.

Chrysler cleared a major hurdle to emerge in 30 to 60 days -- winning approval just five days after it sought bankruptcy protection in Gonzalez's ruling delivered just before 11 p.m.

"We're at the limit here on timing," said Corinne Ball, Chrysler's lead bankruptcy attorney. The value of Chrysler is declining by "hundreds of millions of dollars" every day. "Chrysler is a wasting asset."

She ticked off the declining value of its supply chain, dealers and delays to new product as urgent factors to spur a quick resolution.

Chrysler spokesperson Lori McTavish said the automaker was pleased with the progress.

Chrysler wants a cash deposit of at least $200 million -- or 10 percent -- of what the Treasury Department is in essence proposing to pay for the good assets of the company. "We hope people do bring in a wallet," Ball said.

The judge put off a decision on an objection to the sale from a Michigan state agency until a later hearing.

Late Tuesday, the Michigan Workers' Compensation Agency and Funds Administration sought to block the Chrysler sale, warning that the automaker's decision to abandon its $140 million obligation to the Workers' Compensation Fund could bankrupt the pot intended to support people who are hurt on the job.

"(Chrysler)'s total workers' compensation obligations may exceed $140 million to $150 million with yearly payment obligations of over $25 million," state Attorney General Mike Cox said in a legal brief.

Ball said the company was committed to "honoring our obligations" and wants to "operate their business in conformity in law."

A company spokeswoman said Chrysler was working with the state to resolve the issue.

A spokeswoman for Michigan Gov. Jennifer Granholm said the governor supported the objection.

"The Attorney General's Office is taking routine steps to protect any state interest that may be implicated by the bankruptcy filing," said spokeswoman Liz Boyd, saying it was "necessary to preserve the workers' compensation benefits of about 1,200 former Chrysler employees."

Chrysler hopes to complete a partnership with Fiat SpA, including selling the Italian automaker most of its assets, and exit bankruptcy in 30 to 60 days.

On Tuesday, Gonzalez rejected a request by Chrysler's dissident secured creditors to keep their identities private. Thomas Lauria, a lawyer for those creditors, who hold about 10 percent of the company's $6.9 billion in secured debt, said some had received death threats and didn't want to be "outed."

Gonzalez said the creditors had provided no evidence that they were threatened, aside from a handful of anonymous comments on the Washington Post Web site. The creditors now must disclose their identities and reveal how much they paid for the Chrysler debt -- or withdraw from the case.

Chrysler's distressed debt has been trading for as little as 15 cents on the dollar, less than the 29 cents that the Treasury Department offered to creditors.

The majority of creditors holding 90 percent of the debt have agreed to a deal to swap the debt for $2 billion in cash.
Mich. employees threatened

Michigan's objection came as a surprise.

Even if Workers' Compensation Fund administrators slap an emergency assessment on other self-insured employers in the fund, Cox said, it would raise only about $9 million -- "substantially less than needed to cover (Chrysler's) statutory obligations."

Chrysler wants to leave behind those obligations in the "bad" company that wouldn't emerge from bankruptcy, the state said.

The Auburn Hills-based automaker has sought court permission to set bidding procedures in order to allow its "good" parts to quickly emerge from bankruptcy.

"The agency and funds have no desire to delay the proposed sale," Cox's motion said. But Michigan needs "to ensure that (Chrysler)'s injured workers have a continued source of payment to compensate them for their injuries."

That threatens not just Chrysler employees but all workers in Michigan covered by self-insured plans. Like many large companies, Chrysler is self-insured for workers' compensation claims.

If the proposed sale order is approved and Chrysler is unable or unwilling to continue paying its workers' compensation obligations, Cox said, the self-insurers' fund "would eventually become insolvent, leaving all eligible injured workers of Michigan self-insured employers without a source of benefits."

Chrysler did not directly address its plans for workers' compensation funds.
Creditors form committee

Chrysler filed for Chapter 11 bankruptcy under Section 363(b) of the bankruptcy code, allowing it to split off its "good" assets and leave its "bad" assets in bankruptcy. The automaker still hasn't been clear on precisely what obligations it wants to leave behind -- and who will pay. Chrysler wants to eliminate some dealers, for example, but hasn't said how many.

Chrysler's dissident creditors unsuccessfully argued the bidding procedures constitute a move toward an "illegal" sale and that the procedures are rigged to ensure that only the U.S. government will be qualified to bid for Chrysler's good assets. One condition they claim as onerous is a requirement that prospective bidders have just one week to complete a bid and put up a 10 percent cash deposit before bidding.

Separately, Chrysler's more than 100,000 unsecured creditors formed a committee Tuesday to represent their interests in the bankruptcy case. U.S. Trustee Diana Adams appointed the committee members at a meeting of creditors at a New York hotel.

The committee includes the United Auto Workers and the Pension Benefit Guaranty Corp., along with large creditors Auto Nation, Continental Automotive, Zanetti Autoparts, Ohio Modular and Magna International. Some of Chrysler's largest creditors are owed more than $50 million.

LINK:Judge approves sale of Chrysler | | The Detroit News
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