Chrysler: A Whirlwind of Bankruptcy Court Activity
May 05, 2009
By Michelle Krebs
Who knows if Chrysler really can emerge from Chapter 11 bankruptcy in the 30 to 60 days it hopes for, but the activity around the court proceedings have ratcheted up to warp speed.
On Friday, a day after Chrysler officially filed for Chapter 11 reorganization, photographers, like paparazzi snapping celebrities, shot pictures of lawyers and their assistants carrying document-loaded boxes through Manhattan streets to New York's Southern District court.
There, Judge Arthur Gonzalez, who oversaw the giant Enron and WorldCom bankruptcies, apparently cleared his docket for Chrysler's bankruptcy, the nation's fifth-largest ever bankruptcy.
Monday's Court Actions
Judge Gonzalez took immediate action in the case. In day-long hearings Monday in his jam-packed courtroom, the judge:
- ruled to allow Chrysler to use $4.5 billion in government loans for bankruptcy financing -- known as debtor-in-possession (DIP) financing. He said Chrysler could use the money to pay suppliers and dealers;
- heard a motion from a group of secured lenders, which includes banks and hedge funds, who want to block the sale of Chrysler's assets to Fiat. These are the lenders President Obama referred to as "speculators," as they refused to take the lesser deal offered to them before Chrysler filed for bankruptcy. The group claims the U.S. government-led restructuring of Chrysler violates federal law. Their protests could be a major fly in the ointment for moving Chrysler through bankruptcy quickly;
- set a hearing for Tuesday on a motion to keep secret the identities of the secured lenders. Their attorneys claim the lenders are receiving death threats that have been reported to the police.
Hanging Out the Dirty Laundry
Since private equity firm Cerberus Capital Management took over Chrysler in August 2007, little was known about what truly what's truly going on inside of the company, particularly in terms of financial performance. Executives simply told the media "trust what we say" without offering proof. They revealed only what they wanted to -- mostly good news unless it was pleading their case for a bailout from the government.
But in bankruptcy court, Chrysler stands naked, its dirty laundry hung out for all to see. Among the revelations to come out in the hundreds of bankruptcy documents filed over the weekend were the following:
- Chrysler lost $16.8 billion in 2008, about double what Chrysler execs said it lost in documents submitted earlier to the U.S. Treasury Department. A Chrysler spokesperson explained the numbers had been updated;
- Chrysler will lose $4.7 billion this year, revenues will fall to $34.9 billion this year, about half of 2007's level;
- Chrysler's average cash burn is $1.7 billion a month;
- Chrysler, with Fiat, expects to be profitable by 2012, earning $100 million in 2012, $1.6 billion in 2013 and $3 billion in 2016. Revenues will recover to $63 billion by 2012;
- The "new" Chrysler will have assets of $28.5 billion and debt of $26.5 billion. Assets, currently $35.4 billion, are projected to grow to $49 billion by 2016;
- Chrysler hopes to emerge from bankruptcy July 1.
UAW: More Cuts; Template for GM
United Auto Workers (UAW) President Ron Gettelfinger held a press conference Monday evening. He shed more light on the UAW's agreement with Chrysler and provided an outlook for union members. Gettelfinger told the media:
- the UAW will quickly try to sell its 55 percent equity stake in the new Chrysler once the automaker emerges from bankruptcy. All proceeds from the equity sale will go to the union-run health-care trust fund, known as the Voluntary Employees Beneficiary Association (VEBA);
- Chrysler retirees may see more short-term cuts before the union can sell its 55 percent stake. "In the long run, we think the retirees will come out OK," he said.
- The VEBA now has $1.5 billion, though the union cannot access it until 2010. The first payment into the trust, also slated for next year, will be only about $300 million.
- UAW concessions made to Chrysler will be used as a template with General Motors. Those include suspension of cost-of-living allowances, elimination of Christmas bonuses and a cut in holiday pay. Chrysler retirees also lost vision and dental coverage as well as some prescription coverage, including for Viagra and the like;
- the UAW will have a seat on the board of directors of the new Chrysler but will not have voting rights.
Posted by Michelle Krebs at 8:25 AM under Chrysler , News | Comments (0) | digg this | Seed Newsvine
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