Chrysler's 38,000 workers are entering an uncomfortable limbo this weekend, as the bankrupt automaker temporarily shuts the doors of its factories and works on a restructuring plan. The US government and the company insisted yesterday that it would restart operations within two months, after one of the quickest ever bankruptcy processes, but rebel creditors were digging in for an extended legal fight that could frustrate those plans.
All Chrysler's plants would shut by Monday, it said, but some had closed their doors early after suppliers refused to send vital parts, for fear they may not get paid. In an example of the chain reaction that the Obama administration is struggling to limit, at least three supplier factories were also shut yesterday.
The restructuring deal announced on Thursday will hand effective control of the company to Fiat, which will take a 20 per cent stake when Chrysler emerges from Chapter 11 bankruptcy protection, rising to more than one-third over time. The United Autoworkers union has agreed to take payment for future workers' health benefits in new Chrysler shares, giving it control of more than 50 per cent.
A majority of bondholders have also agreed that $6.9bn of debt should be converted into Chrysler stock at a fraction of that value, but a group of 20 investors, mainly hedge funds, refused to sign off on the deal and said they would oppose the plan in court. The group, which says it holds $1bn in Chrysler debt, says it was sidelined during negotiations with the government by bigger lenders led by banks that had taken government bailout money and were therefore "obviously conflicted".
There are so many parties with an interest in Chrysler's bankruptcy that their attorneys lined up from the early hours of the morning for access to the court, and two overflow rooms had to be set up. The hearing was briefly halted when a woman standing in the warm and stuffy courtroom apparently fainted. Chrysler's motion to allow the automaker to pay its staff and contract workers pre-bankruptcy wages, benefits and businesses expenses was approved by the judge.
A White House official remained upbeat about the prospect of a "surgical bankruptcy", saying that the majority of Chrysler's stakeholders were behind the deal. "Our judgement is that no judge is going to override that kind of support."
The proceedings got under way in a Manhattan court yesterday morning in front of Arthur Gonzalez, the judge who oversaw the bankruptcies of Enron and WorldCom and who has a reputation for thorough but speedy deliberation.Reuse content