Iacocca: Chrysler's Bankruptcy 'Pains Me'

While the president may hope for a short bankruptcy, it may not be that simple, especially with those creditors that Obama signaled out for not cooperating.

"As long as there is significant dissent, there is uncertainty in the outcome," said Barry Adler, NYU law professor.

While the plan calls for using Section 363 of the bankruptcy code "to clear away the remaining impediments to its successful relaunch," a lot will depend on whether or not the individual creditors have a case to make before the bankruptcy judge that has to be considered before this section of the code can be used.

A Fast Bankruptcy?

It's not that a fast bankruptcy won't happen. It might, but it's not necessarily a done deal.

Ed Morrison, a professor at Columbia who specializes in bankruptcy, pulled statistics from well-known bankruptcy expert Lynn LoPucki's Web site that tracks filings and found that from 2000 to the present, the length of the median "pre-negotiated" bankruptcy case was about 5.3 months. During the same period, the length of the median "prepack" case was about 52 days, according to the same data source.

"Prepackaged" means that the debtor drafted the plan and successfully solicited votes on it before filing the case. Prepackaged cases nearly always are filed solely to modify the company's liability on an issue of junk bonds. Once filed, these cases move very quickly.

"Prenegotiated" means that the debtor negotiated the terms of the plan with some, but not all creditor groups before filing -- even if no prefiling vote was taken on the plan. An example would be a plan to sell the debtor's business, which has been drafted and negotiated with a large secured creditor before filing, but not with trade creditors.

"I just hope and pray that something will definitely turn around in another way, but that's all you can do at this point," said Renee Smith, a Chrysler worker.

Co-worker Brenda Bauman added, "Well, my dad is a retiree, so I'm more worried about him right now than me because I can always go out and find a job, somewhere."

Another employee, Paul Thayer, said he wishes the union did more.

"They should have thought this out a little further than the way they did this and I really don't like that they screwed over the retirees -- these people worked for 30 years and now we are just casting them to the side?" he said. "Leaves a real sour taste in my mouth."

The U.S. government is prepared to provide approximately $3.3 billion in debt or in possession financing to support Chrysler though an expedited bankruptcy proceeding.

When the new Chrysler emerges from bankruptcy, the government is prepared to loan about $4.7 billion to it with $2.1 billion due in 30 months. Half of the remaining balance would be due on the seventh anniversary of bankruptcy emergence. The rest would be due a year later. The interest will be an appropriate combination of cash and payment-in-kind. There is also an additional note of $288 million which is a fee for making these loans. These loans will be secured by a first priority lien on all of Chrysler's assets.

Chrysler's New Future

The U.S. Treasury will receive 8 percent of the equity of the new Chrysler. Treasury can select four independent directors initially but after that will play no role in governance or management of the company.

The financing for this new Chrysler will come from GMAC which will get financial support from the U.S. government in order to expand their portfolio to include Chrysler.

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