The US Bankruptcy Court yesterday gave interim approval to Chrysler for US$4.1bn of debtor-in-possession (DIP) financing, funded by the US treasury and Export Development Canada, and the use of $400m of cash collateral, enabling the company to meet its working capital and general business needs under Chapter 11 bankruptcy protection.
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Approval of Chrysler’s DIP financing provides the company with resources to continue “normal course” business operations pending approval of the sale transaction with Fiat, Chrysler said in a statement.
Meanwhile, after an eight hour hearing, US bankruptcy judge Arthur Gonzales in New York cleared the way for Chrysler’s fast-track sale to Fiat after rejecting arguments from a group of lenders who called “illegal” the US government-backed restructuring plan unveiled last Thursday.
Gonzales told a packed federal courtroom that the plan was “a fair and ordinary process,” stressing the “urgent need for the sale to be consummated”, AFP reported.
Although Fiat now looks on track to rescue Chrysler from collapse, Gonzalez said that other bidders had the opportunity to compete.
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By GlobalDataParties have until 20 May to present their offers before the court makes a final decision on 27 May.
The dates were extended by about a week in response to court arguments from the lenders that the Chrysler sale promoted by the Obama administration was unfair and left no time for competition.
Under the plan, Chrysler will be put through a “surgical” bankruptcy to wipe out a portion of its debts, allowing the creation of a new company allied with Fiat.
Lawyers backing the deal said there was no time to lose if the Detroit giant was to survive.
“The most important uncontroverted fact established by this records that Chrysler is a wasting asset. Every day, we’re talking about hundreds of millions of dollars,” warned Chrysler bankruptcy lawyer Corinne Ball.
Fiat lawyer Hydee Feldstein said the deal would create “a phoenix rising from the ashes.”
But Thomas Lauria, a lawyer representing the group of dissenting lenders, countered that “not one witness has testified that the procedures are reasonable.”
The group had asked Gonzales to keep their identities secret, saying they faced “threats” to their safety. However, Gonzalez turned down the application and ordered the creditors to reveal their identities on Wednesday.
The new firm would be majority owned by the United Auto Workers (UAW) union, with small stakes by the US and Canadian governments, which would contribute some $10.5bn to the venture.
Fiat would initially take a 20% stake in the firm that would rise to 35% and could reach 51% as early as 2013 if Chrysler was able to repay its government loans, AFP said.
