Chrysler Said to Seek Approval to Auction Most Assets

Chrysler LLC, intent on a quick bankruptcy, will ask court approval to auction off most of its assets in three weeks to a new company managed by Italian automaker Fiat SpA, a person familiar with the matter said.

In a motion filed today with the U.S. Bankruptcy Court in Manhattan, Chrysler said it would ask May 4 for approval of a planned alliance with Fiat to create the world’s sixth-largest carmaker, a merger it was unable to complete outside of bankruptcy because of the opposition of some secured lenders.

The company asked U.S. Bankruptcy Judge Arthur Gonzalez, who is in charge of the case, to approve an auction quickly. Chrysler wants a schedule that would require objections to the sale to be submitted by May 11 and an auction by May 22, the person said, asking not to be identified because the plan is confidential until announced.

The new version of Chrysler will be the lead bidder in the auction and offer $2 billion for most of Chrysler’s assets, while assuming some liabilities, the person said. The new company would be owned by an employee association, Fiat, the U.S. Treasury and the Canadian government, Chrysler has said. Fiat’s 20 percent stake could be increased to 35 percent if the company meets certain milestones, the company has said.

The $4.5 billion bankruptcy loan the Treasury is providing Chrysler to help reorganize requires the company to complete an asset sale to Fiat or close another comparable deal in less than 60 days, a timeframe personally set by President Barack Obama.

Competitive Bidding

Under bankruptcy law, offers for bankrupt companies or their assets are generally subject to higher bids at a court- supervised auction.

Chrysler, based in Auburn Hills, Michigan, must win approval of auction rules by May 9, and receive any competing offers by May 20, the person said. Following the auction, the sale must be completed by June 27, according to the person.

The automaker filed for Chapter 11 bankruptcy after a group of 20 secured lenders rejected an offer by the U.S. government that would have paid them $2.25 billion for $6.9 billion of debt, or 33 cents on the dollar. Chrysler’s 22 U.S. factories employing about 26,800 hourly workers were idled yesterday.

Chrysler, in court filings, listed assets of $39.3 billion and liabilities of $55.2 billion, making it the fifth-largest bankruptcy in U.S. history.

The U.S. Treasury and the Canadian government have agreed to provide a total of $6 billion in taxpayer money to a Chrysler-Fiat alliance to start and maintain operations, according court filings.

Chrysler operations that aren’t sold would receive about $200 million through the bankruptcy loan “to run a safe, prudent and orderly wind down and sale,” the company said in court filings. Those assets will include eight manufacturing plants and related machinery with a book value of about $2.3 billion, according to a Chrysler executive’s affidavit filed with the court.

The assets would be liquidated in Chapter 11 rather than converting Chrysler’s bankruptcy case to a Chapter 7 proceeding, which would instead involve a court-appointed trustee who would liquidate the assets, the person said.

The case is In re. Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)