Key points of Chrysler plan defense
on Jun 7, 2009 at 9:05 pm
The key points of Chrysler LLC in defense of the sale plan are:
* The company is in a “fragile state,” its value eroding daily, and a delay ordered by the Supreme Court “will kill the sale” with “a calamitous impact.” The loss to Chrysler alone will be more than $1.2 billion.
* If just one of the Big Three automakers goes under, the cascading effect would lead to the loss of more than 2.5Â million jobs, all told.
* The harsh consequences will also fall on the Indiana funds leading the challenge. If the plan goes through, however, they will get $12.2 million on a “distressed investment” that they bought for $17 million.
* The Indiana creditors have not offered to put up a bond as a condition for getting the plan delayed by the Supreme Court. Such a bond would have to be at least $1.2 billion to protect Chrysler, and that figure does not include damages from lost jobs and losses to suppliers and other industries affected.
* The funds have had all of the process to which they are due; the lower court went out of its way to accommodate the funds’ challenge, and decide the case in less than a week.
* If the funds think the manager of the collateral standing behind the top-priority debt did not act properly in agreeing to the sale, they could sue for breach of contract.
* The funds have not even filed their formal appeal to the Court yet, so there is little prospect the case could be decided within a week — pushing the matter right up against the June 15 cutoff date set by the new company’s partner, Fiat, the Italian automaker.
* Because the bankruptcy court ruling approving the sale was largely based on the specific facts, there is little reason to expect the Supreme Court to agree to rule on it. Moreover, the funds have not shown that there was anything illegal about the way the sale was put together and won court approval.
* Even if the Supreme Court were inclined to rule on the funds’ challenge to the role that the U.S. Treasury played, this case is a poor vehicle for examining that question. The funds’ real complaint is that the Treasury should put up even more money so that they would get more when the sale goes through.
* In any event, the Indiana creditors do not have “standing” to challenge the Treasury’s part in the deal, because they cannot show any harm that can be traced to the Treasury’s actions. Moreover, they did not file any complaint with Treasury, as they would have had to do to make such a challenge.
* The law giving the government authority to hand out “bailout” funds is not restricted to “financial institutions,” but extends to all institutions.
* The consumer groups and individuals with lawsuits pending against Chrysler are not in any worse position than they would be if Chrysler collapsed, so they cannot show they are harmed. Federal law clearly allows a bankruptcy court to order a sale of all assets free and clear of obligations.
(Chrysler did not respond directly to the plea for delay by the woman seeking to protect her lawsuit based on claims that Chrysler is reponsible for her husband’s death due to lung cancer, from exposure to asbestos products in repairing Chrysler-made cars.)
The continuation of this post will cover the key points of the autoworkers’ union and other unsecured creditors.
 The key points of the Official Committee of Unsecured Creditors (including the United Auto Workers union, workers, suppliers, dealers and other creditors) in defense of the Chrysler sale plan are:
* The plan “is not perfect,” and will cause “impairment” of many interests — especially those of Chrysler dealers, but “a national disaster” would follow if the plan is blocked and Chrysler collapses, sending harmful ripples across the Nation to engulf dealers, suppliers, workers, customers, lenders, and the whole economy.
* The deal to sell nearly all of Chrysler’s assets to a new company (NewChrysler), in partnership with the Italian automaker Fiat, is the only alternative to closing Chrysler down, with nothing left to sell but “scrap.”
* Shutting down the company would bring in only about $800 million for what is left of it, considerably less than the $2 billion in government funds that will be distributed to lenders. None of the $2 billion will go to creditors with no security.
* The deal could fall through if it is delayed beyond June 15. There is no assurance that the U.S. government or Fiat would be willing or able to work out another deal to prevent Chrysler’s demise.
* The Indiana benefit funds that are leading the opposition is a “fringe group” that holds less than 1 percent of the top-priority debt, and there is no reason for the courts to force everyone else to gamble with what could come next.
* It is “nonsense” to suggest that the interests of the priority debt holders are being transferred to the union or to others with unsecured claims. Those entities will not get any part of the $2 billion payment to “old” Chrysler to close the deal with NewChrysler. Their arrangements are with NewChrysler, reached by negotiations independent of priority lenders’ interests. They will get stock in the new company, in return for their contributions to its future operations.
* Not one aspect of the deal is illegal under bankruptcy law. It is not an end-run around a formal plan to reorganize Chrysler. It is simply a pre-plan sale of assets to keep a “going concern” alive. While its size is unprecedented, the nature of the deal is fairly common.
* There is little, if any, chance that the Supreme Court will hear the coming appeals challenging the plan, and less that it would overturn it, so there is no reason for delay.
