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Court hears Chrysler rescue plan Chrysler court rescue bid begins
(about 1 hour later)
Lawyers for Chrysler have begun outlining to a New York bankruptcy court plans to reorganise, and form an alliance with Italian carmaker Fiat. Chrysler closed its US factories on Friday - having earlier said it would wait until Monday - as proceedings to start its restructuring plans began.
A judge will assess the car firm's plans during a series of hearings. A judge approved motions allowing Chrysler to continue paying employees, before adjourning until Monday.
However a group representing 20 Chrysler lenders, holding $1bn (£674m) in debt, are set to object to the move into Chapter 11 bankruptcy protection. The carmaker will next week present plans to reorganise and form an alliance with Italian carmaker Fiat.
They will challenge the terms of a government-brokered deal to cut Chrysler's $6.9bn (£4.67bn) debt. But a group representing 20 Chrysler lenders, are set to object to the move into Chapter 11 bankruptcy protection.
Observers have suggested the process could delay Chrysler's recovery plan. This protects firms from their creditors, allowing them to rearrange their finances while still trading.
The carmaker closed all of its factories on Friday - having earlier said it would wait until Monday before doing so. But the group of lenders which own $1bn (£674m) of Chrysler's $6.9bn debt are unhappy at the terms of a government-brokered deal.
Lawyer for for firm, Corinne Ball, told the court that the firm could survive bankruptcy. Observers have suggested their objections could delay Chrysler's recovery plan.
"We need to keep driving forward. We need to protect our core value and we need to keep safe our customers," she said. Lawyer for Chrysler, Corinne Ball, told the court that the firm could survive bankruptcy - despite many experts thinking this was not possible.
Chapter 11 bankruptcy protects firms from their creditors, allowing them to rearrange their finances while still trading.
Avoid liquidationAvoid liquidation
The first bankruptcy hearing is under way in front of Judge Arthur Gonzalez in New York, and is expected to deal with basic issues such as paying workers, cash management, and utility costs. The first bankruptcy hearing, in front of Judge Arthur Gonzalez in New York, dealt with basic issues such as paying workers, cash management, and utility costs.
In front of a packed court house, filled with lawyers and their staff, the judge will hear so-called "first-day motions" that will enable Chrysler to continue operating. In front of a packed court house, filled with lawyers and their staff, the judge heard so-called "first-day motions" that will enable Chrysler to continue operating.
Such is the interest in the case that two overflow rooms with video and audio feeds have been opened in the Manhattan courtroom.
Chrysler has said in court documents that the proposed transaction is the only way to avoid liquidation.Chrysler has said in court documents that the proposed transaction is the only way to avoid liquidation.
However, over the coming weeks, those with an interest in Chrysler's future - including the company, creditors, suppliers, dealers and workers - will seek to have their legal say on the reorganisation plan. But those with an interest in Chrysler's future - including the company, creditors, suppliers, dealers and workers - will seek to have their legal say on the reorganisation plan.
Quick?Quick?
The US government has called for a quick, "surgical" bankruptcy, with the process completed within two months.The US government has called for a quick, "surgical" bankruptcy, with the process completed within two months.
BANKRUPTCY PROTECTION US bankruptcy protection is called Chapter 11It gives US businesses time to rearrange their finances while continuing to trade, protected from their creditors.After filing, it is up to the judge to decide who gets paid and how much, balancing the interests of all partiesThe judge holds hearings where all the parties give their viewsHis ruling can be appealed Can Fiat save Chrysler? Q&A: What next for Chrysler?BANKRUPTCY PROTECTION US bankruptcy protection is called Chapter 11It gives US businesses time to rearrange their finances while continuing to trade, protected from their creditors.After filing, it is up to the judge to decide who gets paid and how much, balancing the interests of all partiesThe judge holds hearings where all the parties give their viewsHis ruling can be appealed Can Fiat save Chrysler? Q&A: What next for Chrysler?
But some experts have said that may be difficult with so many different groups involved, including the group of 20 lenders.But some experts have said that may be difficult with so many different groups involved, including the group of 20 lenders.
"I can't tell you how many times people say 'quick'," said David Bitterman, managing director of Huron Consulting Group."I can't tell you how many times people say 'quick'," said David Bitterman, managing director of Huron Consulting Group.
"It's never quick. [Car parts-maker] Delphi promised a quick one and they're still in.""It's never quick. [Car parts-maker] Delphi promised a quick one and they're still in."
Delphi, which was spun off from General Motors, filed for bankruptcy in late 2005.Delphi, which was spun off from General Motors, filed for bankruptcy in late 2005.
A White House official said the majority of Chrysler's stakeholders were behind the deal.A White House official said the majority of Chrysler's stakeholders were behind the deal.
"Our judgment is that no judge is going to override that kind of support.""Our judgment is that no judge is going to override that kind of support."
US officials are expected to ask the judge to force the dissenting creditors to accept the same offer that institutions holding 70% of Chrysler's debt have approved.US officials are expected to ask the judge to force the dissenting creditors to accept the same offer that institutions holding 70% of Chrysler's debt have approved.
Investor interestsInvestor interests
The carmaker hopes to sell its core assets, including the Chrysler, Jeep and Dodge brands, into a new company that would be owned by the US government, Fiat, and the company's workers.The carmaker hopes to sell its core assets, including the Chrysler, Jeep and Dodge brands, into a new company that would be owned by the US government, Fiat, and the company's workers.
The group of 20 lenders have said in a joint statement they were being criticised for trying to protect the interests of their investors, including unions, teachers' credit unions, college endowments, and pension and retirement plans.The group of 20 lenders have said in a joint statement they were being criticised for trying to protect the interests of their investors, including unions, teachers' credit unions, college endowments, and pension and retirement plans.
In pictures: Chrysler's journeyIn pictures: Chrysler's journey
Tom Lauria, a bankruptcy attorney representing a group of secured lenders, has said Chrysler's proposed plan "inverts" the usual priority scheme, whereby senior secured creditors are paid in full first, followed by junior lenders, administrative claims, unsecured lenders and equity holders.Tom Lauria, a bankruptcy attorney representing a group of secured lenders, has said Chrysler's proposed plan "inverts" the usual priority scheme, whereby senior secured creditors are paid in full first, followed by junior lenders, administrative claims, unsecured lenders and equity holders.
Creditors object to the way the restructuring benefits the United Auto Workers union, which is an unsecured creditor, for the $10.6bn Chrysler owes to its retiree healthcare fund.Creditors object to the way the restructuring benefits the United Auto Workers union, which is an unsecured creditor, for the $10.6bn Chrysler owes to its retiree healthcare fund.
"What's happening is the senior secured creditors are going to get 29 cents on the dollar and the unsecured creditors are going to get $10bn," said Mr Lauria.
The lenders said in a statement on Thursday that they had been "systematically precluded" from negotiations with the government.The lenders said in a statement on Thursday that they had been "systematically precluded" from negotiations with the government.
They said they had not been allocated funds from the Tarp programme, but that Chrysler's four main banks - JPMorgan Chase, Goldman Sachs, Morgan Stanley and Citigroup - had received about $90bn in government bail-out cash.They said they had not been allocated funds from the Tarp programme, but that Chrysler's four main banks - JPMorgan Chase, Goldman Sachs, Morgan Stanley and Citigroup - had received about $90bn in government bail-out cash.
The four banks, holding 70% of Chrysler's debt, have agreed to a deal that would give them $2bn.The four banks, holding 70% of Chrysler's debt, have agreed to a deal that would give them $2bn.
'Painful transition''Painful transition'
University of Michigan professor John Pottow, a specialist in bankruptcy, said the US government's level of involvement was much greater than would normally be found in a corporate bankruptcy.University of Michigan professor John Pottow, a specialist in bankruptcy, said the US government's level of involvement was much greater than would normally be found in a corporate bankruptcy.
"If you have the president of the United States who wants something to happen, I think anything's possible in bankruptcy protection," he said."If you have the president of the United States who wants something to happen, I think anything's possible in bankruptcy protection," he said.
Meanwhile, Chrysler's suppliers face an uncertain time.Meanwhile, Chrysler's suppliers face an uncertain time.
Peter DeLorenzo, of internet car magazine Auto Extremist, told the BBC that "suppliers' backs are already up against the wall".Peter DeLorenzo, of internet car magazine Auto Extremist, told the BBC that "suppliers' backs are already up against the wall".
"It is going to be a very painful transition," he said."It is going to be a very painful transition," he said.
Mr DeLorenzo also said that plans to have the company out of bankruptcy within 60 days were "terribly optimistic".Mr DeLorenzo also said that plans to have the company out of bankruptcy within 60 days were "terribly optimistic".
On Friday, Toshihiro Nikai, Japan's trade minister, said his government would take "solid steps" to mitigate the impact on Japanese car parts suppliers from Chrysler's bankruptcy.On Friday, Toshihiro Nikai, Japan's trade minister, said his government would take "solid steps" to mitigate the impact on Japanese car parts suppliers from Chrysler's bankruptcy.
Japan's Denso Corporation sold 43bn yen ($441m) of parts to Chrysler in the last financial year, is owed $18.7m by Chrysler while auto parts firm Yazaki Corporation has $18.3m in unsecured claims.Japan's Denso Corporation sold 43bn yen ($441m) of parts to Chrysler in the last financial year, is owed $18.7m by Chrysler while auto parts firm Yazaki Corporation has $18.3m in unsecured claims.