Our C11 guy Toxicroach checks in:
Chrysler/government is even trying to get rule 6004(b) waived, which would give the creditors 10 days to appeal if the order went through (i.e., they want to get this done so that an appeal is moot because the sale is completed). They are trying to bull rush this through. Wow, this is really starting to piss me off! In short, they were trying to pull a fast one. They take it easy Saturday and most of Sunday, drop the CRITICAL motion at 8 PM on Sunday evening, asking that the hearing to approve the motion be held the very next day (never mind the local rule requiring 20 days notice), AND try to deny the creditors the time to appeal. Wow, that is such a scumbag move!
Kudos to Gerard Uzzi for anticipating this. My immediate and hurried impression is that this was a bit of a desperation play by Chrysler. This sort of brinksmanship is not the behavior of people who think they have a solid legal case. This is the behavior of people who want to avoid scrutiny and were hoping to catch the creditors sleeping.
I’m not sure what this says about Chryslers opinion of Judge Gonzalez. If they thought he was totally in the bag, they wouldn’t bother with these cheap tricks. But if they don’t think he’s in the bag, they will have to use two Dodge Dakotas to tow each of their massive balls into the courtroom after this shenanigan.
Anyway, the non-TARP lienholders are not planning on taking this sitting down. They have, oh, all of bankruptcy law on their side. And they plan on using it. Huzzah!
“The first objection is to their motion to continue to pay pre-petition obligations (download pdf here). Essentially, the non-TARPies are arguing that there is no real intent for Chrysler to be a ongoing business, since the plan is to sell everything to newco anyway, and that the motion to pay prepetition obligations is just a way to deplete the bankruptcy estate of its value before selling it to Newco for a song. In other words, it’s a “sub rosa” plan to screw the bondholders. And he has a good point.
1. MASTER TRANSACTION AGREEMENT among FIAT S.p.A., NEW CARCO ACQUISITION LLC, CHRYSLER LLC and the other SELLERS identified herein. (download pdf here)
3. MOTION OF DEBTORS AND DEBTORS IN POSSESSION, PURSUANT TO SECTIONS 105, 363 AND 365 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULES 2002, 6004 AND 6006, FOR (I) AN ORDER (A) APPROVING BIDDING PROCEDURES AND BIDDER PROTECTIONS FOR THE SALE OF SUBSTANTIALLY ALL OF THE DEBTORS’ ASSETS AND (B) SCHEDULING A FINAL SALE HEARING AND APPROVING THE FORM AND MANNER OF NOTICE THEREOF; AND (II) AN ORDER (A) AUTHORIZING THE SALE OF SUBSTANTIALLY ALL OF THE DEBTORS’ ASSETS, FREE AND CLEAR OF LIENS, CLAIMS, INTERESTS AND ENCUMBRANCES, (B) AUTHORIZING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN EXECUTORY CONTRACTS AND UNEXPIRED LEASES IN CONNECTION THEREWITH AND RELATED PROCEDURES, AND (C) GRANTING CERTAIN RELATED RELIEF. (download pdf here)
Wow. The bondholders are actually going to stand up and fight for what they deserve – good for them.
“its a “subrosa” plan to screw the bondholders”
It’s Sub rosa? No. Open, flagrant, and in your face.
When do the various Chryco Dealers get their kiss off letters?
Add a couple dozen of their lawsuits to the mix and we will definitely have a bonus situation on our hands.
….and just short of governmental involvement in re-interpreting/rewriting US bankruptcy laws (and standing legal precedents), the bondholders are going to win (as they should). Secured debt holders come first, always have, always will.
“never mind the local rule requiring 20 days notice”
ummmm…will there be audio (please)? This is kind of unbelievable considering how touchy things can get over the truly petty details of a filing. Or are bankruptcy courts and judges truly a different breed?
“they will have to use two Dodge Dakotas to tow each of their massive balls into the courtroom after this shenanigan”
I’m guessing not.
Yeah, in normal cases those deadlines and rules are very important.
Watch for Barry to simply declare whatever the hell he wants and ignore the law, and the Judge.
At that point, will all of you start to get the clue that many of us have already gotten?
Dictator: n. An absolute or tyrannical ruler. (Webster’s II New Riverside Pocket Dictionary)
I read an AP article on this filing this morning and was sure they had gotten it wrong. I can’t believe that Chrysler seriously tried to pull this off. Thanks for keeping on top of things, toxicroach, and especially for providing your insights on what all of this means. I think it’s all quite fascinating, and kinda makes me wish I had gone into bankruptcy practice…
Thanks Harvey, I just hope that I am being useful. Take what I say with a grain of salt though, it is far from gospel.
Dictator: n. An absolute or tyrannical ruler
With all due respect, have a look at the definition of hyperbole (n)
I don’t understand how they can just circumvent the rules, or think they can. Pres. Obama seems to be making up his own rules now. or at least letting his appointed cronies do it for him. This bailout is going to leave a bad taste in the mouths of millions of people, and cause them to never buy a car from GM or Chrysler. Why don’t they just do everything the way they know it should be done? It wouldn’t be pretty, but it wouldn’t put this nation in anywhere close to the debt it’s going to be in by the time these bailouts are done. This is pissing me off and I’m starting to wish I had bought an Explorer.
Great Lawyering…..try to kneecap the presiding judge. I guess if you have a sure loser, you don’t care…or you are catering to a “make it so or we fire your firm” client.
Part of professionalism is the ability to control clients with demands such as this.
(sound of commode flushing)
Wow, that is such a scumbag move!
Your tax dollars at work. Remember, this is the Obama administration that is working overtime to keep Chrysler’s secured creditors from having their day in court.
There is a reason why our system has judges in charge of bankruptcies, not politicians.
Great Lawyering…..try to kneecap the presiding judge.
Hell, why not? The judge works for the DoJ and ultimately reports to the guy – BHO (PBUH) – who wants this to happen.
They have, oh, all of bankruptcy law on their side. And they plan on using it. Huzzah!
I’m reminded of Officer Obie in Alice’s Restaurant being confronted with blind justice.
What’s interesting is that there are some commenters who have been cheerleading for a GM & Chrysler Ch. 11, but now that the Anointed One has decided to put the system of capital markets at risk by usurping more senior creditors, those same commenters are going “boo, hiss” at the bondholders effectively forcing this into the bankruptcy courts.
Bankruptcy was the solution until Obama decided to seize Chrysler and GM for the gov’t and the UAW. Then we hear how right the gummint is for it’s eleventh hour feverish work to keep the automakers out of bankruptcy court. The only reason why Obama wants to keep it out of bankruptcy court is that no judge would let his takeover of GM & Chrysler fly.
toxicroach,
Since this is all in your wheelhouse, I wonder if your opinion is at all representative of other bankruptcy attorneys?
This is pretty brazen stuff that Obama is trying to pull off and I can’t believe that most lawyers, including Democrats, would countenance such a huge power grab and disrespect of the bankruptcy process by the administration. I’m pretty sure that most lawyers still understand how important property rights and the rule of law are.
TTAC has been pointedly critical of how GM & Chrysler operated, but in my opinion, nothing GM & Chrysler have done, including selling subprime car loans to folks who should walk, is as sleazy as what administration has been doing in the past week. Now it’s trying to pull a fast one on the court since it couldn’t pull off jawboning the smaller bondholders into relinquishing their property rights.
chuckR writes:
Hell, why not? The judge works for the DoJ and ultimately reports to the guy – BHO (PBUH) – who wants this to happen.
This is not true.
Bankruptcy judges are judicial officers of their local federal district courts. They serve for 14 year terms, and the power of their appointment is vested in whichever circuit court oversees the district court in question. They do not report to anyone in the executive branch. http://www.fjc.gov/history/home.nsf/page/bankruptcy_judges
Regarding the broader point of the post, this move appears to me to be very-hardball lawyering, and distasteful, but not a trashing of the rule of law.
It’s not a rewrite of the rules to file a motion asking a judge to do something, even something unusual. It may be against the rules for the judge to grant it — so he won’t. And if he does, there’s an appeal. (And if the judges are suborned — that is against the rules.) What the litigant is asking for may be so far-fetched and off-the-wall that the judge can (and maybe should) slap him with some sort of sanction for even suggesting it, but that’s also just part of life in the courtroom.
Filing a fink motion, and watching the judge shoot it down, is light years from promulgating some sort of Executive Order which states “in the case of Chrysler, the bondholders get 10 hours instead of 20 days to respond to our plan” and actually having that order stick — that would be banana republic justice. Luckily, we don’t seem to have that, from what I’ve seen so far.
Why am I not surprised by this move? Typical business practices of today. Screw em all but us.
I still think the US government was wrong in giving Chrysler one nickel. They do not deserve to be in business. Could have given every Chrysler employee 500,000 dollars and let the remains of the company rot or sell the bricks and mortar for back taxes.
RF & Toxicroach:
Thank you for this cutting edge analysis. Even the NY hedgies are impressed!
Quick question for you, TR: what do you make of the plan by Chrysler to selectively pay certain dealers for sales incentives? Does the company have a right to pay Peter and not Paul for the exact same obligation?
Thanks.
I’m not trying to present myself as an expert in chapter 11. I am certainly not.
Motown: Chapter 11 is designed to preserve the company as a going concern. If one dealer is moving tons of metal, he’ll get paid so he can keep selling. If another dealer is a dog, he’ll get lumped in with the other creditors in his class (unsecured probably) and get whatever portion of the table scraps his class gets.
This is actually related to the argument the fighting creditors are making— this isn’t really a chapter 11. This is a chapter 7 by another name. Paying unsecured creditors anything on the basis of them being vital to the company is horseshit. Chrysler is dead and will be liquidated. If Chrysler was really trying to right the ship, sure, pay the dealers you need. But nobody intends for Chrysler LLC to be anywhere but Chapter 7 come August.
VERY interesting, TR. Thank you for your thoughts.
Great reading…GO BONDHOLDERS!
wow, this is getting very interesting. i don’t think the mainstream press is totally falling for it. about 10mins into npr’s “the takeaway” http://www.thetakeaway.org/ this morning, they were talking to some consultant/shill about the fiat merger and even the softball interviewer said something to the effect of “i may not be an industry expert like you but i think it’s pretty obvious that fiat is just garage saling here picking up the bargains.”
the consultant/shill then went on to say that chrysler was still going to make the full range of vehicles while possibly eliminating some of the weakest ones. he actually said that the pacifica might be cancelled. when are people going to wake up to the fact that there is tremendous over-capacity in our automobile industry and someone has to go?
p.s. i still like the obama team even though this is nuts.
The problem I have with the bankruptcy is that Chrysler is trying to do a cramdown without the proper judicial process. It’s really that simple. Either pay the creditors enough to get them to go away or take the time it takes to get it done right. I haven’t seen anything extra legal on any side, but there is an attitude coming from Chrysler that they expect to get a lot of special treatment. It is that presumption that is pissing me off the most.
I wouldn’t know if my opinions are representative.
Wait a second here, folks…
Nobody seems to mention that the Non-TARP creditors declared war first here. There is aggressive lawyering on both sides and what happens here will have a profound effect on GM’s Chapter 11, which is coming for sure.
Clearly, liquidating Chrysler to pay secured creditors is not what the government wants. At the very least, they are going to fight it out so that the Non-TARP creditors don’t get a penny more than the $0.29 on the dollar that they rejected.
The question you have to ask at the end of the day is which outcome is best for Chrysler employees as well as the taxpayers who have already sunk a big chunk of money to keep Chrysler afloat.
My prediction is that when all is said and done the creditors are going to wish they had taken the $0.29 and kept their reputations.
NBK-Boston
D’oh! Oh course the judges are under the judiciary branch. I blame Obama Derangement Syndrome – I so don’t want him to succeed here.
Some in the media are quietly aware of how brazen this Chrysler deal may be. The day after the filing, NPR had a panel of experts who were doubtful this could be resolved quickly.
The question you have to ask at the end of the day is which outcome is best for Chrysler employees as well as the taxpayers who have already sunk a big chunk of money to keep Chrysler afloat.
The bondholders have a bigger chunk of money invested in Chrysler than the taxpayers.
Re AnalogKid :
“The question you have to ask ….which outcome is best for Chrysler employees as well as the taxpayers….”
Why do I have to ask that question? Seriously.
The tax money is gone, the Gov’t filings have already confirmed that and Chrysler employees have a shared responsibility regarding the demise of their company.
Even as recently as last week, in the face of all that we’ve seen the CAW insisted that there would be no wage cuts.
Why are you telling me that I need to care about them as employees, then they care about their own company?
It’s a fair question.
Ronnie & Mike,
The secured bondholders were asked to accept $0.29 on the dollar on about $6.9 billion of debt. Lenders holding 70% of the outstanding debt agreed. The UAW stake is over $10 billion and the taxpayer stake is about $4.5 billion with up to another $6 billion in DIP financing. Those are the numbers.
If you accept the premise that it is worthwhile to try to prevent the economic consequences of Chrysler liquidation, (if you don’t then you can stop reading now) then the primary goal is to have them emerge from a Chapter 11 proceeding with a fair shot at making it.
Obviously the holdout creditors would prefer Chapter 7, either because they think they will get more than $0.29 (extremely doubtful in my view) or because they hold credit default swaps that will pay them out in Chapter 7 (or both.)
Why are you telling me that I need to care about them as employees, then they care about their own company?
I’m not sure what you mean by this, but what I was referring to is the total economic fallout to employees, suppliers and the regional economy. Either you care about that or you don’t (and if you don’t it’s probably because you don’t live there.)
Thanks for giving some perspective chuckR. These creditors are like the original patriots shouting “No taxation without representation!” They are fighting for their economic freedom against a powerful government. I hope the judge recognizes that as a Federal employee he risks being perceived as President Obama’s tool. What I hope is that this proceeding is done carefully and correctly. Nothing could be better for the stock market than injecting the rule of law into this politicized Wall Street vs K Street battle. Shenanigans like Rattner and Mr. Obama tried to pull result in capital flight. I am a GM bondholder and I hope we creditors teach them a lesson on Chrysler so that they’ll start negotiating in good faith in GM. Like Malcolm X said, you have to speak to them in a language that they understand. Only the Native American tribes that fought the USA are recognized by the government and have treaty rights. The ancestors of those tribes died fighting so that their descendants have some shred of rights today. They had to fight hard enough and well enough to make the USA desire a treaty. Those that didn’t fight at all the USA considered their “friends”, they were pushed off their land and hunted down like dogs, the USA left them completely landless and rightless and they and their descendants have largely disappeared from the face of the earth. Appeasing the USA is a fatal strategy, one must fight fight fight otherwise Uncle Sam will take it all without a kiss and a dance.