Fear and Greed Blog

After the Non-TARP lenders dissolved their ad-hoc committee, I was under the impression that the 363(b) sale being pushed by the Administration and Chrysler was pretty much a done deal.

Turns out that I might have been a little quick in coming to that conclusion!

The deadline for filing objections to the approval of the Sale Transaction was May 19th at 4:00 PM (Eastern). The 19th was, therefore, a big day for filings.

Reading through some of the objections, there appears (to me) to be some substantial issues for Judge Gonzalez to consider.

A number of dealers whose franchises are being rejected in the bankruptcy have objected to the 363(b) sale (the best example is Docket 1045). Given that the franchise rejection has been tied by the Debtor to the 363(b) sale and given that these dealers are potential unsecured creditors, they may be in a position to challenge the sale. Their position might be stronger if the Court were to decide that the 363(b) is a sub rosa plan. Of course, since they are among the few parties alleging the sub rosa plan, Judge Gonzalez must determine that they, or one of the other parties, have standing to make that argument (I'm not a lawyer, but it seems like there might be some circular logic here).

One of the dealers objecting to the 363(b) plan (Docket 1189) noted that neither Capstone nor Greenhill, in their consideration of the transaction, spoke to the Director of Dealer Operations. Further, the objection states that:

the list of documents upon which Mr. Manzo relied does not contain any documents or studies analyzing the effect of the size of Chrysler’s dealer network. Id. at Ex. C. Indeed, the word “dealer” does not appear in the Manzo Declaration itself at all.

Since one of the arguments being made by the dealers is that there has been no good business reason supporting the benefit to the debtor of reducing the number of dealerships, this could be important.

There was also one objection by first lien creditors. White & Case filed the objection on behalf of the Indiana State Teachers Retirement Fund, Indiana State Police Pension Trust, and Indiana Major Move Construction (Docket 1185), so Tom Lauria (the Non-TARP lenders' attorney) was able to present the arguments that he had spent so much time preparing. Of course he is also alleging a sub rosa plan in his arguments. His objection also includes the following information (quoting from the hearing transcripts, which haven't been made available on the public site):

19. Even though this transaction will reorder the economic interests of every Chrysler stakeholder, the Debtors have ignored fundamental issues related to this transaction. The Debtors made no effort to determine whether selling its assets to New Chrysler as a going concern would bring creditors a better recovery than a liquidation of Chrysler’s component parts.(Hr’g Tr. 252:3-253:18) Indeed, the Debtors cannot make this judgment, as they claim not to know either the liquidation value or the going concern value of the company. (Hr’g Tr. 251:7-252:18) Given this, it is not surprising that the Debtors admit to not having considered its fiduciary duty to work for the benefit of all stakeholders or how to protect against conflicts of interest among various stakeholders. (H’rg Tr. 256:23-258:1)

20. The Debtors have likewise ignored the structure of the sale transaction. The Debtors’ chief financial officer does not know the value of New Chrysler, the amount of debt it can support, or the value of the New Chrysler stock being distributed under the sale transaction or why it was allocated as proposed in the Sale Motion. (Hr’g Tr. 235:9-236:6) The Debtors did not play any role in negotiating the capital structure of New Chrysler and did not decide what any of its stakeholders would receive as part of the transaction. (Hr’g Tr. 235:9-236:6; 246:10-19; 130:16-23)

21. The Debtors abdicated each of these critical management decisions to the Treasury Department, whose only legally cognizable interest in these cases is that of a third-lien lender.

Given the capitulation by the other first lien creditors, this may not matter. However, in a "cram-down" situation, the Court looks to whether the disputing party is receiving at least what that party would have received in a liquidation. Had the first lien creditors, as a group, objected to the 363(b) sale, this could have been a bigger issue. I don't know how the Court will view it given the status of the parties.

There were also a number of objections to the 363(b) sale by tort litigants, non-union pensioners, and some other parties.

I don't know if Judge Gonzalez will be able to ignore these objections on the basis of standing (the one lonely objection by a first lien lender might not be enough without a larger number of holders).

In any event, the arguments against the accelerated 363(b) sale have been made to the Judge, so we'll see what he does with them.

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