Chrysler Files for Chapter 11 Protection
Posted: Thursday, July 9th, 2009 at 2:41 pm
After President Barack Obama criticized hedge funds for blocking an out-of-court restructuring of the U.S. carmaker Chrysler’s $6.9 billion debt, the American company filed for Chapter 11 bankruptcy protection.
The Obama administration reported that the owner of Jeep and Dodge would come out from a “surgical” bankruptcy process with new shareholders—such as Italy’s Fiat and the United Auto Workers union—and new government aid. The U.S. government is going to provide Chrysler with up to $3.3 billion in bankruptcy court financing through the $700-billion financial industry bailout bonds, in addition to $4.7 billion in loans for Chrysler to exit bankruptcy in order to launch its partnership with Fiat SpA. Chrysler’s chief executive, Bob Nardelli, will step aside as a condition of the deal.
Mr. Obama publicly recognized JPMorgan Chase and other large banks for their agreement of the terms for the proposed restructuring plan. However, the bankruptcy blame was put on a “small group of speculators” who refused to participate financially in the buying-out offer to swap Chrysler’s debt for $2.25 billion in cash.
“They were hoping that everybody else would make sacrifices and they would have to make none,” he said. “Some demanded twice the return that other lenders were getting. I don’t stand with them.”
Debtholders opposed to the administration’s plan said: “The government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades.” The President believes that the ruling will get approved, and once that happens, Chrysler will continue business as usual, except with $8 billion in its pockets from the US Treasury and Canadian government.
When Chrysler comes out of bankruptcy, it is unclear who will run the business. The new nine-member board of directors is to include six people appointed by the U.S. and Canadian governments; Fiat is to appoint three, including one of its own executives. It will be 55 per cent owned by the UAW and a separate workers’ healthcare trust. Fiat will start with a 20 percent stake in the company, with an option to increase over time.
Mr. Obama said “As part of their agreement, every dime of new taxpayer money will be repaid before Fiat can take a majority ownership stake in Chrysler.”
The cost of Chrysler’s bankruptcy also will be felt in factories, showrooms and working-class homes across metro Detroit.
More than 20,000 hourly workers on temporary layoff will get just 80% of their normal take-home pay while laid off.
“Chrysler’s bankruptcy is going to be a difficult period for many Macomb County workers and families,” said Paul Gieleghem, chairman of the Macomb County Board of Commissioners. Chrysler is the county’s second-largest employer and taxpayer.