Chrysler LLC won bankruptcy court approval to auction most of its assets by May 27 with an offer from Italy’s Fiat SpA as the lead bid in a deal that would create the world’s sixth-largest automaker.
US Bankruptcy Judge Arthur Gonzalez approved Chrysler’s auction plan at a hearing on Tuesday in Manhattan. He overruled an objection from a group of Chrysler’s secured lenders that said the process was too heavily influenced by President Barack Obama’s administration and would distribute proceeds improperly.
“The court concludes the bidding procedures are appropriate and necessary,” Gonzalez said in a ruling from the bench at about 11 pm.
Chrysler proposes to sell itself to an entity owned by Fiat, a union benefit trust, the US Treasury and the Canadian government. Auburn Hills, Michigan-based Chrysler wasn’t able to close the merger outside bankruptcy protection because of opposition by some of the lenders holding $6.9 billion in secured debt.
Fiat’s $2 billion offer for most of Chrysler’s assets will be the lead bid in an auction, which is typically required for assets sold in bankruptcy. Chrysler extended the sale process at the request of its creditors’ committee, putting the deadline for competing bids at May 20 and setting a May 27 hearing to approve the winning bid, said Corinne Ball, a lawyer for the company.
Gonzalez also approved a $35 million breakup fee for Fiat if it’s outbid at the auction.
Chrysler’s financial adviser, Greenhill & Co, said the Fiat offer was fair and the only deal available to Chrysler. Fiat’s 20 per cent stake in the new company could be increased to 35 per cent if certain milestones are met, the company has said.
The US Treasury is providing a $4.5 billion bankruptcy loan to help Chrysler reorganize. Loan terms require the company to complete an asset sale to Turin-based Fiat or close another comparable deal in less than 60 days, a deadline set by Obama.
Following the auction, the sale must be closed by June 15, with a 30-day extension for lack of regulatory approvals, according to court filings.
The dissident lenders argued the auction process was moving too quickly and the judge should extend deadlines set by the US Treasury to allow for potential bidders to investigate Chrysler.
“There’s no evidence regarding the reasonableness of the bidding procedures,” Thomas Lauria, a lawyer for the lender group, said in court. He said the auction process should be rejected as “facially inadequate.”
Robert Manzo of Capstone Advisory Group LLC, a Chrysler financial adviser, testified the company has essentially been for sale for more than a year, as Chrysler executives sought partnership with automakers around the world and no bidders had surfaced.
Without the Fiat alliance, secured creditors may not receive any recovery, he said.
Ball said distressed assets were often sold quickly, pointing to asset sales by Lehman Brothers Holdings Inc, Bear Stearns and Refco Inc.
“It’s not perfect,” she told Gonzalez. “No one is saying it is perfect. We are doing what is necessary. Time isn’t our friend here.”
The automaker filed for Chapter 11 bankruptcy on April 30 after a group of 20 secured lenders rejected an offer by the US government that would have paid unsecured lenders $2.25 billion for $6.9 billion of debt, or 28 cents on the dollar.
