Chrysler LLC, the smallest of the Big Three U.S. automakers, filed today for bankruptcy protection in New York to streamline operations and shed debt in a reorganization that includes Italy’s Fiat SpA as a partner.
The iconic automaker, which survived a near-death experience in 1979, missed a U.S. government deadline to come up with a restructuring plan by today that was rigorous enough to avoid bankruptcy and qualify for more bailout aid. The carmaker tried to negotiate an alliance with Fiat, reduce $6.9 billion in secured loans and cut $10.6 billion owed to a pension fund. Some lenders refused to slash the debt to $2.25 billion.
The carmaker and the government plan to use the bankruptcy process to revitalize Chrysler by putting its best assets, such as its Jeep and Dodge Ram brands, in a new company that wouldn’t be burdened by current costs and debt. A slimmed-down version of Chrysler, armed with Fiat’s small-car technology, would emerge from such a process, giving the carmaker a “new lease on life,” U.S. President Barack Obama said today.
“Bankruptcy could do a lot of good for Chrysler” by allowing it to “shrink down to the size it needs” quickly, said Stephen Lubben, who teaches bankruptcy-law at Seton Hall University School of Law in Newark, New Jersey. “Fiat has shown that it knows how to turn around a troubled business.”
Bankruptcy can involve uncertainty and delay. Dissident creditors intend to object to the company’s reorganization plan, a person familiar with their thinking said. That might thwart President Barack Obama’s goal of a “surgical” bankruptcy that would put a viable carmaker quickly into the market.
Important to Nation
Having the government as a party to such a process, on the other hand, may work in Chrysler’s favor, lawyers said.
“If the Secretary of the Treasury suggests to the court that a particular result is important to him and to the nation, it may be hard for a judge to resist,” said Richard Hahn, co- chair of law firm Debevoise & Plimpton LLP’s bankruptcy group.
The government also has the power to change some of the traditional business rules by changing existing law, he said.
The filing made today may prove a template for rival General Motors Corp. GM was given a June 1 deadline by the government to cut costs and debt to qualify for its share of added bailout aid. To become a viable carmaker, GM plans to keep only its most profitable brands, such as Chevrolet and Cadillac.
Chrysler, controlled by private-equity firm Cerberus Capital Management LP, received the $4 billion in January and was promised $6 billion more if costs and debt were cut enough. After the initial loan, U.S. auto sales plunged to a 27-year low in February and dropped 37 percent in March.
Thursday, April 30, 2009
Chrysler Files for Bankruptcy to Shed Debt, Seal Fiat Accord
Labels: WORLD NEWS
Subscribe to:
Post Comments (Atom)
0 comments:
Post a Comment