Chrysler files for Chapter 11 protection
By Tom Braithwaite in Washington and John Reed in London
Copyright The Financial Times Limited 2009
Published: April 30 2009 14:12 | Last updated: April 30 2009 19:49
http://www.ft.com/cms/s/0/76ccd92c-3588-11de-a997-00144feabdc0.html
Chrysler filed for Chapter 11 bankruptcy protection on Thursday after President Barack Obama criticised hedge funds for blocking an out-of-court restructuring of the US carmaker’s $6.9bn debt.
The Obama administration said the owner of Jeep and Dodge would emerge from a “surgical” bankruptcy process with more government aid and new shareholders, including Italy’s Fiat and the United Auto Workers union. Bob Nardelli, Chrysler chief executive, will step aside as part of the deal.
Mr Obama praised JPMorgan Chase and other large banks for accepting the terms of the proposed restructuring plan. He laid blame for the bankruptcy filing on “a small group of speculators” who refused to buy into an offer to swap Chrysler’s debt for $2.25bn 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 government’s auto industry task force believes the restructuring plan will be approved in bankruptcy court. Pending the court’s approval, Chrysler will continue business in its current form, with the US Treasury and the Canadian government providing it with about $8bn in financing to allow it to continue doing business, Fiat said.
The partnership with Fiat represents a major coup for the Italian carmaker, which had previously abandoned the US market.
“We are certain that a stronger and more international Fiat will emerge from this alliance,” said Sergio Marchionne, Fiat chief executive.
Under the plan outlined on Thursday, Chrysler will face 30-60 days in Chapter 11, which enables businesses to restructure and reorganise under court supervision. During that period, Chrysler will close most of its North American plants, idling tens of thousands of workers.
When Chrysler emerges from bankruptcy it will be 55 per cent owned by the UAW and a separate workers’ healthcare trust. Fiat will take an initial 20 per cent stake with the option of increasing it over time. The Italian carmaker is contributing new technology and a commitment to continue building cars in the US.
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 US car industry spotlight now turns to General Motors, which has until the end of May to follow Chrysler in reaching an agreement with workers and debtholders to cut costs.
Reporting by Tom Braithwaite, John Reed, Bernard Simon, Julie MacIntosh and Nicole Bullock
Going cheap
Bob Nardelli, Chrysler’s chairman and chief executive, said he would leave the carmaker with no severance package. Mr Nardelli was criticised when he left his former job as Home Depot chief executive with a $210m (£142m) severance deal. His successor will be chosen by the new board, comprising US government and Fiat nominees.
Chrysler filing sets up legal battle
By Julie MacIntosh, Henny Sender and Nicole Bullock in New York and Tom Braithwaite in Washington
Copyright The Financial Times Limited 2009
Published: April 30 2009 19:05 | Last updated: May 1 2009 00:08
http://www.ft.com/cms/s/0/9ab3490e-35ae-11de-a997-00144feabdc0.html
Chrysler’s Chapter 11 bankruptcy filing on Thursday sets the stage for what promises to be an epic legal battle over the Obama administration’s attempt to reorder the US auto industry.
Facing off against the administration will be a group of senior Chrysler debt holders who rejected a last-minute offer from the company under which creditors would have received $2.25bn (€1.7bn, £1.52bn) in cash for their $6.9bn in debt. Four leading banks, holding 70 per cent of Chrysler’s debt, agreed to take 29 cents on the dollar. The dissident creditors argue that the proposed restructuring plan championed by the administration is unfair because it places their claims – which are secured on Chrysler’s assets – below the unsecured claims of the United Auto Workers trade union.
Under the restructuring proposal supported by the federal government, the UAW would own 55 per cent of Chrysler after it emerges from bankruptcy. Fiat, the Italian carmaker, would take an initial 20 per cent stake.
A statement issued by some of the dissident creditors said the government’s effort to restructure Chrysler “risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades”.
The first skirmish between the two sides could take place today when Chrysler is expected to ask its bankruptcy judge – Arthur Gonzalez, who also oversaw the massive bankruptcy of energy company Enron – for the use of a special bankruptcy procedure that would pave the way for a rapid settlement of claims.
Chrysler’s dissident creditors are expected to argue against the expedited process, calling instead for a “plain vanilla” Chapter 11 bankruptcy, which could take longer and thereby foil the Obama administration’s hopes for a “surgical” bankruptcy.
Creditors who have opposed the restructuring plan include OppenheimerFunds, people familiar with the matter said. The company declined to comment.
In interviews, dissident creditors said they felt pressured to accept the restructuring terms agreed by the four big Chrysler lenders – JPMorgan, Citigroup, Morgan Stanley and Goldman Sachs – who had arranged the financing and agreed to the restructuring plan. People involved in the process said one key participant in the lobbying effort was James B. Lee, vice-chairman of JPMorgan. Mr Lee declined to comment.
All four of the big banks that agreed to the restructuring plan have received government money under the Troubled Assets Relief Programme, or Tarp.
Mr Obama yesterday praised the efforts to turn around Chrysler by Fiat; Chrysler and its chief executive Bob Nardelli; the UAW; the federal government’s automotive task force, and banks led by JPMorgan.
“The process will be quick, it will be efficient,” Mr Obama said. “It’s designed to deal with the last few hold-outs, and it will be controlled.”
Mr Obama outlined a series of other measures to support the industry, including the naming of Ed Montgomery, who is currently a dean at the University of Maryland college of behavioural and social sciences, as a “director of recovery” for those communities that are dependent on the suffering Detroit carmakers.
The government also picked a winner for Chrysler in terms of its vehicle loans, which will now be provided by GMAC, the finance arm of General Motors, rather than its own financing division, which Mr Obama said would be too dependent on taxpayer money.
“We worked very hard to keep this company out of bankruptcy,” said a senior administration official.
The administration and Chrysler began laying the groundwork for a Chapter 11 filing months ago. In March, the administration addressed two fears relating to the failure of a carmaker – a cut-off of supplies by jittery parts makers unsure they will be paid and a customer exodus – by stepping up more aid for Detroit’s supply base, and promising government backing for warranties for Chrysler and GM cars.
Unlike GM, which sells more than half its cars outside the US, Chrysler is an almost solely US-focused business, with fewer than 10 per cent of its sales outside North America.
“They obviously have fewer international operations than other companies, and they have prepared it quite carefully,” said Leo Plank, a partner and bankruptcy specialist with Kirkland & Ellis, a law firm.
“It’s entirely possible that this is a short, surgical Chapter 11.”
After cutting its workforce by more than 32,000 over the past two years, Chrysler employed 54,000 people in the US at the end of 2008. The company is expected to continue to sell cars, to supply dealers with stock, and to pay suppliers under Chapter 11 bankruptcy protection.
Additional reporting by John Reed in London and Bernard Simon in Detroit
Obama Brings a Hands-On Style to Details, Big and Small
By PETER BAKER
Copyright by The New York Times
Published: April 30, 2009
http://www.nytimes.com/2009/05/01/us/politics/01obama.html?th&emc=th
AS he thrust Chrysler into bankruptcy on Thursday, President Obama stopped to make a commercial message to his national audience.
The latest on President Obama, the new administration and other news from Washington and around the nation. Join the discussion.
“If you are considering buying a car,” he said as cameras carried his words live, “I hope it will be an American car.”
No money down! Just drive it off the lot today!
But he was not done yet. “I want to remind you that if you decide to buy a Chrysler,” he went on, “your warranty will be safe because it is backed by the United States government.”
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He may not have set out to be a car salesman — or a banker for that matter, or an insurer. But suddenly Mr. Obama is all of those. And more.
In the midst of a health scare, he is Dr. Obama telling Americans to wash their hands. In an energy crisis, he is a utility engineer telling them to turn down their thermostats.
By dint of circumstance, ideology or nature, or some blend of the three, this is a president, and by extension a government, that is increasingly involved in many corners of society.
The president’s announcement on Chrysler made abundantly clear that his team effectively controls a onetime American industrial giant, down to determining which executives are out, which brands die and how much aggrieved creditors will get.
Standing behind Mr. Obama during Thursday’s announcement was essentially the new management team for American industry, the collection of cabinet secretaries, economists and policy makers who make up the president’s auto team. It will be up to these government jockeys to help build a new-generation Chrysler that can retool its products, scale back its work force and find its niche in the modern marketplace.
All of which has many free-market libertarians worried about the expanding presence of the state and its leader. Even many conservatives grant the logic behind government intervention during times of economic crisis — after all, it was President George W. Bush who started putting taxpayers into the banking business — but they want to see an exit strategy.
The administration’s resistance to taking back bailout money from some financial institutions only reinforced the fear that state involvement may not be temporary.
“You can make a reasonable case that the circumstances required them to” dive deeply into the financial sector, said Irwin M. Stelzer, director of the Center for Economic Policy Studies at the Hudson Institute. “What is scary is they don’t want to give it up: ‘Here’s your money back.’ ‘Uh-uh, we don’t want you to give the money back. We want control.’ ”
Mr. Obama insists he has no interest in “meddling in the private sector,” as he put it at his news conference Wednesday. “I don’t want to run auto companies,” he said. “I don’t want to run banks. I’ve got two wars I’ve got to run already. I’ve got more than enough to do. So the sooner we can get out of that business, the better off we’re going to be.”
And yet there does seem to be a part of Mr. Obama that has him in other people’s business beyond business itself. He seems prone to giving advice for everyday lives. During the campaign last year, he told Americans to properly inflate their tires and get their cars tuned up to save on energy use. Republicans mocked him, with Gov. Sarah Palin of Alaska, the party’s vice presidential nominee, complaining that his approach would lead to the “government moving into the role of taking care of you.”
More recently, Mr. Obama advised Americans not to “stuff money in their mattresses” out of fear of bank failures. Last month, he held a roundtable discussion to urge Americans to refinance their houses, complete with a Web address. And on Wednesday night, he counseled those worried about a flu outbreak to “wash your hands” and “cover your mouth when you cough.”
Such entreaties do not always work out so well for presidents. Mr. Bush was ridiculed for telling Americans after Sept. 11, 2001, that the most important thing they could do was to go shopping.
Jody Powell, a former press secretary for President Jimmy Carter, said that the president has a responsibility to speak out. “I think Americans are kind of looking for some leadership here,” he said. “Maybe we’re getting past the point of, ‘Hey, if it feels good do it; don’t worry, it’ll all work out.’ ”
Even some critics said Mr. Obama’s popularity might make it easier for him to play the outsize role in American society he is assuming, at least for now.
“He is, I hate to say this, the father of the country,” Mr. Stelzer said. “There’s a kind of egomania behind that. But it works.”
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