Judge OKs Daimler, Cerberus Deal To Forgive Chrysler Loans
03 Juni 2009 - 11:37PM
Dow Jones News
Chrysler LLC won court approval Wednesday for a key settlement
in which former owner Daimler AG (DAI) will forgive nearly $2
billion in loans to the auto maker and pay $600 million into its
pension plans.
Chrysler says the deal, which also calls for current owner,
Cerberus Capital Management, to forgive a $500 million loan, is a
critical element in its sale to a new company owned in part by
Italy's Fiat SpA (FIATY).
The settlement wipes out debt and eliminates the possibility
that the government's pension watchdog, the Pension Benefit
Guaranty Corp., could terminate Chrysler's pension plans, which are
underfunded by $10 billion, according to court documents.
Termination would give the PBGC a $9 billion claim against the
company, interfere with the sale to Fiat and cause "significant
disruptions" for Chrysler's workforce, Chrysler said.
Judge Arthur Gonzalez of the U.S. Bankruptcy Court in Manhattan
approved the settlement at a court hearing Wednesday afternoon
after Chrysler negotiated changes and resolved objections.
Daimler has agreed to forgive $1.5 billion under a second-lien
credit agreement and a $400 million loan to a Chrysler unit. It
will make the $600 million payment to the pension plans over a
two-year period. In addition to the loan forgiveness, Daimler,
Cerberus and Chrysler have agreed to drop certain claims against
one another.
Separately, a court hearing on whether to shutter a quarter of
Chrysler dealers was postponed to Thursday morning, a day later
than scheduled. The parties will present evidence Thursday and
possibly Friday. Oral arguments on the dealerships are set for
Tuesday.
Jeffrey Ellman, a Chrysler lawyer, said in an interview that the
hearing was postponed to accommodate the court's calendar. Stephen
Lerner, an attorney representing some of Chrysler's dealers, cited
"process reasons" for the delay but declined to elaborate.
Chrysler is looking to close 789 of its 3,200 dealers as part of
its effort to sell the bulk of its assets. The affected dealers
accounted for about 14% of Chrysler's sales last year.
The auto maker has said the move is necessary because its dealer
network is too big and dealerships in some markets overlap.
Chrysler also is focusing on putting its three brands under one
roof, rather than having stand-alone Dodge, Chrysler or Jeep
franchises.
Gonzalez approved Chrysler sale late Sunday, but a group of
Indiana pension funds has appealed his order.
Under Chrysler's plan, Fiat would initially own 20% of the new
company, though it would have the option of increasing its stake to
as much as 51%. The United Auto Workers union would initially get a
55% stake, while the U.S. and Canada would own 8% and 2%,
respectively.
The Indiana funds say Chrysler's plan upends the rights of
senior lenders to be paid off before junior creditors. They also
say the Treasury Department doesn't have the authority under the
Troubled Asset Relief Program to finance Chrysler's
restructuring.
Oral arguments before the 2nd U.S. Circuit Court of Appeals in
New York are set for Friday afternoon.
"We are pleased that the Court of Appeals in setting this
schedule and has recognized the sense of urgency Chrysler has to
preserve and protect its going concern value," Chrysler said in a
statement Wednesday. "We look forward to an expeditious conclusion
to this matter and to getting back to building vehicles."
In Washington on Wednesday afternoon, General Motors Corp.
(GMGMQ) Chief Executive Fritz Henderson and Chrysler LLC President
Jim Press defended their companies' plans to shut down dealers. GM
plans to close about 2,600 dealers.
The hearing was called by U.S. Sen. John Rockefeller, D-W.Va.,
chairman of the Senate Commerce, Science and Transportation
Committee, who has voiced concern about the auto companies' plans
to drastically reduce their dealer networks.
The hearing comes amid a major lobbying campaign by dealers on
Capitol Hill to pressure lawmakers to rein in the plans.
-By David McLaughlin and Chad Bray, Dow Jones Newswires;
212-416-2018; david.mclaughlin@dowjones.com;
(Jeff Bennett in Detroit and Josh Mitchell in Washington
contributed to this report.)