A U.S. bankruptcy judge on Sunday approved the sale of substantially all of U.S. automaker Chrysler's assets to a group led by Italy's Fiat SpA
Judge Arthur Gonzalez approved the $2 billion sale of the assets to a new company that will be 68 percent controlled by a healthcare trust aligned with the United Auto Workers union.
Fiat will control 20 percent, the U.S. and Canadian governments will control the other 12 percent.
In his written opinion Judge Gonzalez said the only alternative to approving the sale was the immediate liquidation of the company and that he was concerned about saving the value of Chrysler as a continuing operation.
Indeed, because of the overriding concern of the U.S. and Canadian governments to protect the public interest, the terms of the Fiat Transaction present an opportunity that the marketplace alone could not offer, and that certainly exceeds the liquidation value, Gonzalez wrote in a 47-page opinion.
Chrysler filed for bankruptcy protection on April 30 to complete the sale and alliance with Fiat within 60 days in a case that analysts have seen as a test for the much bigger and more complex bankruptcy of GM.
Judge Gonzalez, who has also overseen the Enron and WorldCom bankruptcies in his nearly 14 years on the bench, rejected nearly every argument objectors to the deal offered up in a three-day hearing last week.
He also questioned some of the objectors' legal rights to make such arguments.
Objectors to the deal had included a group of Indiana pension funds holding secured debt, some of the 789 dealerships Chrysler plans to reject, and consumer groups.
They had argued that Chrysler was moving too quickly, that the sale violated bankruptcy principals and that the company was needlessly closing hundreds of its dealerships.
Lawyers for the company, however, said the quick sale was needed to preserve the value of Chrysler's operations and save more than 100,000 auto-related jobs.
Judge Gonzalez did not accept arguments by dealers that new Chrysler was unfairly rejecting their dealership franchises, saying that such decisions are allowed in every bankruptcy case, would give the new company the best shot at survival, and that government involvement should not make this case any different. He noted another hearing on dealer contracts is set for this Wednesday.
He also rejected several arguments brought by the Indiana pension funds against the deal.
Judge Gonzalez wrote that the deal does not violate the typical order of bankruptcy repayments, and it was not a sub rosa plan of reorganization masquerading as a sale, because not one penny of value of Chrysler's assets was going to anyone but its senior lenders, who are receiving $2 billion, or 29 cents on the dollar. Other parties like Fiat, the union and the government are receiving stock in the new company.
In a separate opinion, Judge Gonzalez found that the Indiana pension funds lacked standing to challenge the government's use of funds for automakers under the Troubled Asset Relief Program.
Gonzalez also agreed with arguments from JPMorgan Chase & Co, the agent on Chrysler's senior loans, that the dissenting lenders had already signed away their rights to object by agreeing in loan papers that the administrative agent can act collectively on behalf of all the lenders.
More than 90 percent of Chrysler's senior lenders supported the deal to sell the company to a new Chrysler, which will be known as Chrysler Group LLC.
Observers expect the deal to close almost immediately but were preparing for objectors to file an appeal in another court.
Chrysler's unwanted plants, and other assets and liabilities will remain in bankruptcy court for some time.
The case is In re: Chrysler LLC, U.S. Bankruptcy Court, Southern District of New York, No. 09-50002.