"It was unacceptable to let a small group of speculators endanger Chrysler's future by refusing to sacrifice like everyone else.
The failure of some of Chrysler LLC’s creditors to agree to a debt-for-equity swap, tested President Obama’s patience for a month, but not his resolve or his readiness to save the once proud Michigan automaker from oblivion, and give it what he said would be a “new lease on life.”
So the President agreed with the recommendations of his Auto Task Force and directed that Chrysler LLC enter into bankruptcy under Chapter 11, section 363, in a Federal District Court in New York City, which is vastly experienced in such matters. The bankruptcy was filed today.
New Chrysler will emerge “stronger, and more competitive,” the President said. No further job cuts are anticipated at this time. If all goes well, more jobs will ultimately be created.
The “alliance” with Fiat will create the sixth-largest global automaker, spreading R&D and design development costs over higher volumes, making it more competitive in an increasingly global and consolidating industry.
Fiat is contributing billions of dollars in advanced technology and intellectual property, and offering Chrysler access to its global distribution network. Fiat’s technology will allow Chrysler to build new fuel-efficient cars and engines in North American factories.
The “appropriate level of shared sacrifice” was not achieved, so Chrysler will go through what is termed a “surgical, short bankruptcy in order to finish the restructuring of its balance sheet and emerge with as a properly capitalized company that could be competitive,” a senior administration official said in a background briefing that TheDetroitBureau.com participated in.
Chrysler’s largest secured creditors have agreed to exchange their portion of the Company’s $6.9 billion secured claim for a pro-rata share of $2 billion in cash at closing. The Bankruptcy Court will be used to impose this treatment on those lenders that failed to accept the offer, which was accepted by a majority of the lenders.
The President lambasted hedge funds and speculators looking for “unacceptable” taxpayer subsidies.
During the 30 to 60 days the bankruptcy is predicted to take, Chrysler will function normally, suppliers will be paid and people will be able to finance and purchase vehicles because of funding from the U.S. and Canadian governments. Funding is being provided on about a $3:C$1 ratio, reflecting the highly integrated nature of Chrysler’s operations on both sides of the border.
Employees will get paid, including salary, wages and ordinary benefits. Workers compensation claims will continue to be paid by Chrysler’s insurers. Assuming the sale moves forward as expected, Pension Plan and VEBA funding will be transferred to the purchaser. (more…)