Friday, May 1, 2009


According to this CNBC article, the Government is seeing a quick, 30-60 day bankruptcy. I think that is unlikely. First of all, as I suggested a month ago on this blog, Chrysler will file in Manhattan, not Detroit. This lays the groundwork for a quicker bankruptcy. However, the bench in Manhattan is very experienced with large matters. While they have the experience to act quickly and in the bankrupt estate's best interest, they also are likely to uphold the rights and priorities of the various stakeholders. This is part of the reason why the holdout debt holders believe they will fare better in a bankruptcy than the out-of-court deal proposed by the Treasury.

The Treasury believes that will be a quick sale of the assets and Chrysler's operations will emerge from bankruptcy. First of all, there won't actually be a sale of the assets to an unrelated third party. The stock of the post-bankruptcy Chrysler will be split up between creditors (the US Government being a creditor) and FIAT.

The stock can't actually be split amongst the parties unless pursuant to a confirmed plan of reorganization (POR). FIAT really can't be guaranteed of its share of the equity until a POR is developed, negotiated, voted upon and confirmed by the bankruptcy court which must deal with many issues that the Treasury was hoping to sweep away and with good reason.

There will be objections and litigation skirmishes regarding:

(1) the value of the banks' collateral securing $6.9 billion of loans
(2) collateral values of other secured creditors such as mortgage lenders
(3) the priority of the US Government's pre-petition multi-billion dollar loans
(4) which dealers to keep and which dealers to close and the payments to such dealers
(5) the classification and priority of various UAW and retiree claims
(6) the classification and priority of the claims for unpaid taxes due various municipalities, counties, states and the IRS
(7) the treatment of so-called "critical vendors" (this will be a free-for-all)
(8) the contribution required from Daimler-Benz
(9) potential issues against majority owner funds controlled by Cerberus
(10) treatment of suppliers and vendors not deemed "critical"
(11) a key employee retention program that will be proposed within days
(12) the treatment of the Government's post-petition loans
(13) the assumption or rejection of virtually every outstanding contract
(14) A laundry list of other issues that will come to light shortly

So, 30 to 60 days? Not likely. Not likely at all.

Cheers, Mike

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