Judge to rule by Monday on sale of Chrysler assets

May 29, 2009 7:14:46 PM PDT
A bankruptcy judge said Friday that he will rule by Monday on whether Chrysler LLC can go forward with its plan sell most of the company to a group headed by Italy's Fiat and take a big step toward its goal of a speedy exit from Chapter 11. U.S. Judge Arthur Gonzalez's ruling will likely come on the same day that fellow U.S.-based automaker General Motors Corp. is expected to follow in Chrysler's footsteps and file for bankruptcy protection.

The judge's Friday evening announcement came after 11 hours of testimony and arguments Friday that followed marathon sessions the two previous days, during which everyone from the automaker's outgoing chief executive to dealers slated to lose their franchises took the stand.

Gonzalez is widely expected to approve the sale but it's likely that attorneys for three Indiana state pension and construction funds, which have aggressively opposed the deal, will appeal the decision and possibly force Chrysler to further postpone the deal's closing.

Chrysler claims that any substantial delay could push Fiat to back out if the deal, since the Italian automaker has set a deadline of June 15 to wrap up a transaction.

Attorneys for Auburn Hills, Mich.-based Chrysler say that with the help of Fiat and its technology, a leaner Chrysler could shift more easily to building smaller, more fuel-efficient cars.

If the sale ultimately goes through, Chrysler could emerge from Chapter 11 bankruptcy protection within weeks, defying observers who said that the company could linger under court oversight for years. Chrysler filed for Chapter 11 on April 30.

Chrysler and other supporters of the sale argued during closing arguments on Friday that the automaker had to make a quick choice between completing a deal with Fiat with the government's financial help, or shutting down and selling itself off in pieces.

Corinne Ball, an attorney for Chrysler, said that in order to make the sale happen, sacrifices needed to be made by everyone involved, including the company's workers, dealers and secured debt holders.

"I really think they're whining about not getting more," Ball said.

The Indiana funds are fighting the sale, saying that as secured lenders they shouldn't be forced to take such a large loss on their investment. The funds hold $42.5 million, or about 1 percent, of Chrysler's total $6.9 billion in secured debt. They bought the debt in July 2008 for 43 cents on the dollar.

In the days leading up to Chrysler's filing for bankruptcy protection, most of the bondholders agreed to a deal that would give them a combined $2 billion, or 29 cents on the dollar, to erase the debt, but a small number of them balked and the deal fell through, forcing the company into a reorganization in bankruptcy court.

Thomas Lauria, an attorney for the Indiana funds, questioned how Chrysler could give the United Auto Workers union a 55 percent stake in the new company, especially when it remains unclear just how much that stake is worth.

Lauria accused the government of pulling the strings in the case and using Chrysler as a "guinea pig" ahead of GM's expected Chapter 11 filing.

"Is this really the way we want troubled companies to be reorganized going forward?" he asked. "If we let this go, eventually there won't be any more lenders."

Like the funds, many Chrysler dealers, suppliers and former employees filed objections to the sale and say they are being steamrolled by the exceptionally quick bankruptcy court proceedings.

Friday's court hearings got going with testimony from a trio of Chrysler dealers slated to lose their franchises as part of Chrysler's restructuring. Chrysler wants court approval to terminate the franchises of about 789 of its dealers, calling it a needed cost-cutting measure.

Richard Mealey, president of Birmingham Chrysler Jeep in Troy, Mich., said that if the judge approves the termination of the dealer franchises, he expects to lay off most of his 89 employees at the end of next week, with the rest staying on to keep the body shop open and help wind down the rest of the business.

"We feel totally rejected, dejected and very, very concerned about the future," Mealey said.

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