Chrysler to File for Bankruptcy

[Savonarola]

Chrysler to file for bankruptcy
Backed by $3.5 billion more in aid, Chrysler-Fiat to emerge in 30-60 days
By Justin Hyde and Greg Gardner • Free Press Business Writers • April 30, 2009

WASHINGTON – President Barack Obama said today that Chrysler LLC will file a historic bankruptcy shortly, backed by up to $3.5 billion in new government aid designed to allow a Chrysler-Fiat partnership to emerge from court in 30 to 60 days.

The move also sends a strong signal to bondholders at General Motors Corp. that the Obama auto task force will act on its vow to take GM into a similar bankruptcy if they do not agree to swap their GM debt for shares in a reworked GM.

"The necessary steps have been taken to give one of America's most storied companies a new lease on life," Obama said.

Under Chrysler's bankruptcy, to be filed in New York in a matter of hours, the two automakers along with the UAW, Fiat and a majority of lenders will ask a judge to force a swap of $6.9 billion in debt for $2 billion in cash. The number of Chrysler dealers, now about 3,200, will be reduced through bankruptcy, but the administration officials did not say how many would be eliminated.

The agreement with Fiat will allow the Italian company to take a 20% stake in Chrysler that will grow as Fiat meets certain milestones, such as building new models in Chrysler plants. In addition to the $3.5 billion in financing to keep Chrysler operating while in bankruptcy, the government will also provide up to $4.7 billion for the new Chrysler once it emerges.

The Obama administration will also give additional aid to GMAC so that it can take over lending to Chrysler's customers and dealers from Chrysler Financial, which the government has deemed not viable. And the Canadian government will also provide new financial aid to Chrysler's operations in that country in return for 2 per cent in the new Chrysler.

The administration portrays its "surgical" bankruptcy of one of Detroit's major automakers as just a legal chore, rather than the threat to Chrysler's existence and the entire U.S. auto industry that Chrysler itself had described less than three months ago. Administration officials said Chrysler would operate as usual during bankruptcy, and that no additional job cuts were anticipated as of now.

The government will take a stake in the company and have a say in helping Chrysler and Fiat select a new board of directors. Chrysler Chief Executive Robert Nardelli has said he would step down after the partnership was cemented.

The decision to take Chrysler into bankruptcy came after three lenders -- Oppenheimer Funds, Perella Weinberg Partners, and Stairway Capital – balked at the original $2-billion offer, as well as an increase of $250 million from Treasury on Wednesday evening. The White House and Michigan's congressional delegation pressed the holdouts to agree by 6 p.m. Wednesday, but no deal was reached.

"A group of investment firms and hedge funds chose not to make sacrifices. In fact they wanted to qualify for an injustified government bailout," Obama said. "Some demanded twice the return other investors would have received."

The lack of an agreement will not "impede the new opportunity Chrysler now has to restructure and emerge stronger going forward," the official said.

The U.S. Treasury had guaranteed the warranties of Chrysler and General Motors Corp. in part to assuage worries of customers who might think twice before buying from a bankrupt automaker. GM has a June 1 deadline to reach its own debt agreement or go through a similar move.

President Obama said Wednesday that "even if they (Chrysler) ended up having to go through some sort of bankruptcy, it would be a very quick type of bankruptcy and they could continue operating and emerge on the other side in a much stronger position."

The UAW late Wednesday night overwhelmingly ratified cost-cutting changes in its labor contract that freeze wages for Chrysler's 26,000 U.S. hourly workers and slash more than $5 billion from what Chrysler was to pay into a retiree health care trust next year. That trust would own 55% of the new Chrysler, while Fiat would start with a 20% stake and the government would own another large portion.

Fiat will ratify its agreement with Chrysler today to share technology and engineering resources Chrysler and the UAW have valued at $8 billion to $10 billion.

The Obama auto task force had been pressing for GMAC LLC to step into the role held by Chrysler Financial. It was not immediately clear how much additional aid or regulatory help GMAC would receive for taking on the role, nor what would happen to Chrysler Financial.

Another lingering question: whether Fiat would sell vehicles under its own brands through Chrysler, even as the government pressed GM to cull its brands due to shrinking U.S. market share.

An administration official said the case would be filed in New York because the bankruptcy court there has extensive experience with large cases, including those of Delphi Corp. and Northwest Airlines.

Somewhere Lee Iacoca is crying.   

[Hansmeister]

Not surprisingly Obama is attacking the investors whom he tried to stiff for not agreeing to let him confiscate their investment.

I'm sure Obama's attempts to rip off bondholders is doing wonders in reviving the bond market.

[MadImmortalMan]

I have to say I 'm really disappointed with the way the administration is handling the auto companies. Bad show, gentlemen.

[Barrister]

There is no way in hell Chrysler will emerge from bankruptcy in 30 to 60 days.

[Caliga]

There is no way in hell Chrysler will emerge from bankruptcy.

Fixed. 

[Ed Anger]

The magic negro will guarantee our warranties.

[Barrister]

Nah - with all that government money it'll emerge from bankruptcy some day.

But 30-60 days?

I think Delphi (which primarily makes auto parts) has been in bankruptcy protection for years.

[The Brain]

:nelson Americans suck.

[Darth Wagtaros]

Canadians suck.

[JacobL]

With this recent news I am confident in our capabilities as a state to lead America into a new and dark future.  We will blaze a trail right past 20% unemployment so that others can follow our shining example.

GO MICHIGAN!

[Hansmeister]

Michael Barone explains well what happened:

Behind the Chrysler bankruptcy
By: Michael Barone

04/30/09 12:33 PM
Chrysler is going into Chapter 11 bankruptcy, despite the Obama administration's efforts to keep it out.

The problem was that a group of small bondholders rejected the deal that car czar Steven Rattner and his deputy (and it seems the real dealmaker) Ron Bloom.

The bondholders made a good point. They are secured creditors, and in our bankruptcy law secured creditors get paid off in full before unsecured creditors get anything. That's a sound legal principle: why would secured creditors lend anyone anything unless they can get their security back if the loan isn't paid off? In this case, the small bondholders were willing to settle for only 60% of what they were owed. But, they complain, the government wouldn't negotiate directly with them, but only through JPMorganChase, which (unwillingly) took TARP money on October 13 and thus is under pressure to do what the government wants.

Translation into politispeak: The government squeezed the small bondholders too hard in order to protect the United Auto Workers, which of course has over the years been a bounteous source of money (and manpower) for the Democratic party. The government can muscle the big banks, but it can't (at least not yet) muscle creditors whom it hasn't forced to take its money.

the Age of Crony Capitalism.

[DontSayBanana]

[snip tard trolling]

Hans, shut it. Not only did the UAW take a hit on their collective bargaining agreement, in doing so, they're taking a 55% share in Chrysler, so they're taking on a hefty burden in addition to relinquishing some of their compensation.

If you had actually bothered to listen to Obama's comments earlier, he was oddly specific about who the holdouts were- largely hedge fund managers who were holding out against the prospect of bailout compensation.

Due to the nature of my former job, I know of several of the holdouts who went to the table fully prepared to sabotage talks; I do not consider them worthy of any pity.

Normally, I'm pretty critical on the UAW, but in this case, I'm going to side with them because they tried to take the high ground and got cock-blocked by a few greedy assholes.

[Neil]

If you had actually bothered to listen to Obama's comments earlier, he was oddly specific about who the holdouts were- largely hedge fund managers who were holding out against the prospect of bailout compensation.

Why believe Obama?  He's a liar.

[Hansmeister]

[snip tard trolling]

Hans, shut it. Not only did the UAW take a hit on their collective bargaining agreement, in doing so, they're taking a 55% share in Chrysler, so they're taking on a hefty burden in addition to relinquishing some of their compensation.

If you had actually bothered to listen to Obama's comments earlier, he was oddly specific about who the holdouts were- largely hedge fund managers who were holding out against the prospect of bailout compensation.

Due to the nature of my former job, I know of several of the holdouts who went to the table fully prepared to sabotage talks; I do not consider them worthy of any pity.

Normally, I'm pretty critical on the UAW, but in this case, I'm going to side with them because they tried to take the high ground and got cock-blocked by a few greedy assholes.

You seem to be the one with ADD since i originally pointed out that Obama was blaming the evil capitalists for failing to fall on their swords.  Funny that those small investors didn't want the government to illegally confiscate their property.  People can be silly like that.

[Siege]

I really don't understand economy.

How unjewish is that?

But then, I am sefaradi.