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Chrysler heads to court for key bankruptcy hearing

(Agencies)
Updated: 2009-05-27 22:04

The logo for Chrysler at the New York International Auto Show in April. The US Treasury said late it had provided another US$757 million to troubled US automaker Chrysler, which has filed for bankruptcy. [Agencies]

Last week, attorneys for the funds asked US Judge Arthur Gonzalez, the bankruptcy judge overseeing Chrysler's case, to postpone the sale hearing in order to give the district court time to rule, but that motion was denied.

Chrysler attorney Thomas Cullen said during Tuesday's hearing that the agreement with Fiat represents the best deal Chrysler could get to save itself, noting that the company also looked to other automakers and its lenders for help but didn't get any.

"The government was our bank of last resort," Cullen said. "We desperately, desperately needed that financing or we would have needed to liquidate."

The funds also have filed a motion objecting to the sale, saying it puts the interests of other parties ahead of those of the funds and other secured debt holders.

Glenn Kurtz, an attorney for the funds, accused the government of trying to unfairly speed Chrysler through the bankruptcy process, pushing aside the rights of bondholders.

Full coverage:  Global Auto Industry Woes Related readings:  Chrysler May sales dip 30%  Chrysler targets 800 dealers in reorganization  Chrysler moves to eliminate 789 of 3,200 dealers  Chrysler to cut 800 dealers on Thursday  Chrysler's auction plan gets go-ahead

"The rule of law should apply even if there are adverse social consequences," Kurtz told the court.

When Chrysler filed for bankruptcy on April 30, the government estimated the company would exit bankruptcy in 30 to 60 days. The automaker is nearing the end of the process and is expected to emerge from court protection closer to the 30-day timetable, said a person familiar with the matter. The person was not authorized to speak publicly on the matter and spoke on condition of anonymity.

Griesa noted that the funds will have the right to appeal Gonzalez's ruling on the sale motion if they don't like it. Kurtz said after Tuesday's hearing that he fully expects the sale motion to end up in district court.

The three funds, which include the Indiana State Teachers retirement Fund and Indiana State Police Pension Trust, along with the Indiana Major Moves Construction Fund, hold a combined US$42.5 million of the total US$6.9 billion in secured debt. They bought the bonds in July 2008 and paid 43 cents on the dollar, Kurtz told the court.

In the days leading up to its Chapter 11 filing, Chrysler reached an agreement with the majority of its bondholders in which they would receive a combined US$2 billion in a deal worth 29 cents on the dollar. But some of the bondholders, including a group represented by Kurtz's firm White & Case, refused to support it, saying that as secured lenders they deserved more.

A sign posted at the entrance to the Timberline Dodge dealership in Portland, Ore., Tuesday, May 26, 2009. [Agencies]

On the day Chrysler filed for bankruptcy protection, President Barack Obama singled out the lenders group as a reason why Chrysler was forced to file for bankruptcy protection, saying that they were seeking an "unjustified taxpayer-funded bailout."

The group later dissolved after its members decided that it had become too small to be effective.

It's doubtful that GM will have any more luck in dealing with its bondholders.

A committee representing GM's biggest bondholders -- mostly big banks and other institutional investors -- has opposed that automaker's debt-for-equity swap from the start. Smaller, "retail" bondholders -- individual investors like retirees and families -- have also railed against the terms of the exchange.

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