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Chrysler lenders try to block Fiat deal in court

Chrysler lenders try to block Fiat deal in court

Lawyers for a dissident group of Chrysler LLC lenders worked Monday to block the sale of the automaker's most valuable assets to Italian automaker Fiat, saying that government-brokered deal isn't fair to Chrysler's secured creditors.
The group wants to prevent the automaker from paying $8 billion in pre-bankruptcy costs owed to its suppliers, dealers and employees, saying it would reduce the amount that the lenders deserve to recover if the proposed deal with Fiat fails.
"No doubt, the motions to pay pre-petition claims inverts the priorities established by the bankruptcy code to support a misguided proposed sale transaction that produces a greater recovery for unsecured creditors than for the creditors with liens on substantially all of the debtors' assets," the group said in documents filed in bankruptcy court Monday.
Chrysler has said that the deal with Fiat is key to its receiving $4.5 billion in government bankruptcy financing and ensuring a quick and "surgical" exit from court oversight.
Gonzalez was expected to decide Monday whether Chrysler can start using $4.5 billion in loans from the U.S. and Canadian governments to keep operating under bankruptcy protection. Lawyers for Chrysler have said its vital that it gets access to the money immediately.
But the biggest obstacle appears to be the secured lenders that hold $6.9 billion of the company's debt.
A group of holdout lenders refused to go along with the government's plan for them to wipe out the debt for about 29 cents on the dollar, and President Barack Obama blamed them for pushing Chrysler into filing for bankruptcy protection Thursday.
Early in Monday's daylong hearing, Tom Lauria, a lawyer for some of the creditors, objected to a Chrysler motion to allow the automaker to pay taxes, and he indicated that he also would object to the payment of other costs and expenses.
"What we're doing is spending money today that we're going to have to fight to get back later," he said.
That came after Judge Arthur Gonzalez postponed his decision on whether Chrysler can start the process of selling its assets to the new entity partnered with Fiat.
Gonzalez delayed the issue until Tuesday afternoon after attorneys for the lenders group said they needed more time to review the proposed deal and the 300-page filing that went with it. Chrysler lawyers did not file its motion until late Sunday.
Also on Monday, one of the top financial advisers overseeing Chrysler LLC's restructuring testified in bankruptcy court Monday that there is a "low likelihood" that the automaker will be able pay back its billions of dollars in government loans.
But Robert Manzo, an executive director with the restructuring group Capstone Advisory Group LLC, said he doesn't view the government financing as "free money."
"They're offering financing with a low likelihood of being repaid," he said.
Under a plan announced Thursday for Chrysler to file for Chapter 11 bankruptcy protection and partner with Italian automaker Fiat Group SpA, the government agreed to provide $8 billion in financing on top of the $4 billion Chrysler has received since January.
Lauria, whose group includes lenders such as OppenheimerFunds Inc. and Stairway Capital Management, also said during Monday's hearing that some of the holdout lenders have asked to remain anonymous for now, citing fears about their safety.
"People in the group have received death threats that they believe to be bona fide and contacts with the police have been made," Lauria said.
Four banks holding 70 percent of Chrysler's secured debt agreed to the government's deal to wipe out the debt, but a collection of hedge funds refused to budge, saying the deal was unfair because they deserve to recover more than other creditors like the United Auto Workers.
Obama on Thursday said the funds were seeking an "unjustified taxpayer-funded bailout" after Chrysler and his auto task force cleared the company's other hurdles, including the Fiat deal and a cost-cutting pact that the UAW ratified last week.
Chrysler executives testified during the afternoon about the relationships between Chrysler and its suppliers and dealers. A Chrysler dealer also took the stand to talk about how vehicle sales tumbled in the months leading up to the Chapter 11 filing, along with his concerns about how the bankruptcy filing will affect dealers' sales in the future.
Scott Garberding, Chrysler's executive vice president for procurement, testified that a prolonged Chrysler bankruptcy could have a disastrous effect on the company's about 1,300 production suppliers.
"I think the extreme case we could have multiple suppliers, probably the very specialized ones, file for bankruptcy or liquidate," Garberding said. "It's really already a tough environment for them."
Chrysler, the nation's third-largest car manufacturer, filed for bankruptcy protection Thursday with plans to emerge in 30 to 60 days as a leaner company and with Fiat potentially becoming the majority owner.


Updated : 2021-04-11 20:15 GMT+08:00