Chrysler’s Non-TARP Lenders and Uncle Sam: Mano a Mano
Posted by Larry Doyle on May 4, 2009 1:25 PM |
The Chrysler bankruptcy drama escalates. Bloomberg reports, Chrysler Non-TARP Lenders Object To Auction Plan.
Uncle Sam would seemingly like to fast track the delivery of Chrysler into Fiat’s hands and run roughshod over the standard rules and regulations of bankruptcy proceedings. Will Judge Henry Gonzalez allow this to happen?
The lenders maintain:
. . . the U.S. government is violating federal law in order to preserve the automaker.
The group, calling itself Chrysler’s non-TARP lenders, in reference to the Troubled Assets Relief Program, seeks to block the proposed sale to an alliance led by Fiat SpA, as well as a request by the U.S. automaker for approval of a $4.5 billion Treasury loan to finance the reorganization. The group said secured lenders who agreed to the Fiat deal, such as JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc., were conflicted because they had also accepted TARP funds.
The process is “tainted” because it was dominated by the government, the lenders argued in papers filed today in U.S. Bankruptcy Court in Manhattan. The group also said the short period of time given to evaluate the sale was improper and the hearing on bid procedures that began today should be delayed. The judge delayed the hearing until 2:30 p.m. tomorrow, ordering the members of the lender group to reveal their identities.
The sale “improperly attempts to extinguish their property rights without their comment,” attorneys for the objecting lenders wrote in court papers. “The sale motion should be denied because it seeks approval of a sale that cannot be approved under the bankruptcy code,” they argued, adding “the court should not permit a patently illegal sales process to go forward.”
Clearly the judge in these proceedings is under immense pressure. Will he feel pressure akin to Ken Lewis to do what is “in the best interests” of the country or operate by the “letter of law.” Aren’t those supposed to be the same?
Bloomberg provides further insights:
Under bankruptcy law, offers for bankrupt companies or their assets are generally subject to the possibility of higher bids at a court-supervised auction.
The Fiat offer, to be made from an as-yet unnamed entity formed by the Italian automaker, Chrysler employees and other parties, will be the lead bid in an auction, which is typically required for assets sold in bankruptcy. Chrysler is asking U.S. Bankruptcy Judge Arthur Gonzalez to approve bidding rules for an auction which would require creditor objections to the sale be submitted by May 11, followed by a May 15 deadline for competing bids. The bankrupt company seeks a May 21 hearing to approve the winning bid, according to the court filing.
Chrysler, in its April 30 filings, listed assets of $39.3 billion and liabilities of $55.2 billion, making it the fifth-largest bankruptcy in U.S. history, according to data compiled by Bloomberg News.
Chrysler’s proposed sale favors junior creditors over senior creditors and would improperly channel the proceeds to specific creditor groups, the objecting lender group said in the court filing.
While this situation is very fluid, the impact of decisions rendered by Judge Gonzalez may serve as precedent for a long period. I can only hope for our country’s long-term economic well being that proper and legal protocol is maintained. Bloomberg reports even more drama in this situation:
In court today, Thomas Lauria, a lawyer for the objecting lender group, said some of its members have received death threats.
Mano a Mano.