A bankruptcy judge on Monday gave Chrysler access to a crucial $4.5 billion to fund the carmaker’s operations through the end of June, creating a “bridge” to the sale of the company’s most valuable assets to Italy’s Fiat Group SpA.
Chrysler LLC won the interim approval for the government loan and immediate use of $1.8 billion, staving off the immediate threat of liquidation for now. Access to the full $4.5 billion requires final approval in a later hearing.
U.S. Bankruptcy Judge Arthur Gonzalez overruled objections from a dissident group of Chrysler LLC lenders, who argued that the loan was too closely tied to the sale, setting Chrysler on an irreversible path to complete the deal at the lenders’ expense.
“As the court is aware, we’re concerned that’s we’re starting construction of a bridge that may turn out to be a pier,” said Tom Lauria, an attorney for the lenders.
Lauria argued the sale planned by Chrysler and the government favors other stakeholders such as the United Auto Workers union, which would get a 55 percent stake in the “new Chrysler” when a deal is consummated and billions of dollars in cash payments later. His clients would get about 29 cents on the dollar to dissolve what they’re owed.
But four banks holding 70 percent of Chrysler’s $6.9 billion in secured debt had agreed to the government’s deal to wipe out the debt.
At an event in Sterling Heights, Mich., on Monday, UAW President Ron Gettelfinger said critics who think the union is getting a better deal than Chrysler’s secured debtholders are wrong because the UAW is taking a big risk with Chrysler equity that is currently worthless.
Gonzalez also ruled Monday that Chrysler can pay $8 billion in taxes and costs to suppliers, dealers and employees.
The Fiat deal is a key pillar of Chrysler’s plan for a quick and “surgical” exit from court protection. Without the sale, the government had been unwilling to offer $4.1 billion in loans to fund Chrysler’s operations. Chrysler also has the use of another $400 million in cash.
The biggest obstacle appears to be Lauria’s clients, who may be forced to disclose their identities Tuesday. Gonzalez is set to rule on whether the list of lenders can remain private. Disclosure of their identities may cause some of them to drop their objections.
The group of holdout lenders refused to take the four banks’ deal and go along with the government’s restructuring plan for Chrysler, and President Barack Obama blamed them for pushing the automaker into filing for bankruptcy protection Thursday.
“I’ve never represented a group of creditors who were called out by the president of the United States just for standing up for their rights,” Lauria said.
Obama said Thursday that the lenders 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.
Lauria, whose group includes lenders such as OppenheimerFunds Inc. and Stairway Capital Management, said some of the holdout lenders have asked to remain anonymous because of fears about their safety. Some in the group have gotten death threats, he said.
Gonzalez delayed until Tuesday afternoon the hearing that will determine how Chrysler’s assets will be transferred to the new entity tied to Fiat. 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’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.
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.