In re Chrysler LLC

• Decision Date: 31 May 2009
• Docket Number: No. 09 B 50002(AJG).,09 B 50002(AJG).
• Citation: 405 B.R. 84
• Parties: In re CHRYSLER LLC, et al., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

Page 84

405 B.R. 84

In re CHRYSLER LLC, et al., Debtors.

No. 09 B 50002(AJG).

United States Bankruptcy Court, S.D. New York.

May 31, 2009.

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A. Jeffrey Misler, Daniels & Kaplan, P.C., Kansas City, MO, Benjamin Rosenblum, Corinne Ball, Veerle Roovers, Jones Day, New York, NY, John E. Berg, Clark Hill PC, Detroit, MI, Lawrence V. Gelber, Schulte Roth & Zabel LLP, New York, NY, for Debtors.

OPINION GRANTING DEBTORS' MOTION SEEKING AUTHORITY TO SELL, PURSUANT TO 11 U.S.C. § 363, SUBSTANTIALLY ALL OF THE DEBTORS' ASSETS

Arthur J. GONZALEZ, Bankruptcy Judge.

Before the Court is a motion seeking authority to sell substantially all of the debtors' operating assets, free and clear of liens, claims, interests and encumbrances to a successful bidder and to authorize the assumption and assignment of certain executory contracts and unexpired leases in connection with the sale, as well as certain other related relief. The sale transaction for which authorization is sought (the "Sale Transaction" or "Fiat Transaction") is similar to that presented in other cases in which exigent circumstances warrant an expeditious sale of assets prior to confirmation of a plan. The fact that the U.S. government is the primary source of funding does not alter the analysis under bankruptcy law.

FACTS¹

On April 30, 2009 (the "Petition Date"), Chrysler LLC ("Chrysler") and 24 of its domestic direct and indirect subsidiaries (collectively with Chrysler, the "Original Debtors") filed for protection under title 11 of the United States Code (the "Bankruptcy Code"). On May 1, 2009, an Order was entered directing that the Original Debtors' cases be jointly administered for procedural purposes, pursuant to Rule 1015(a) of the Federal Rules of Bankruptcy Procedure. On May 19, 2009, Alpha Holding LP² ("Alpha" and with the Original Debtors, the "Debtors") filed a petition for relief under title 11 of the Bankruptcy Code. On May 26, 2009, an order (the "Alpha Order") was entered directing the joint administration of Alpha's bankruptcy case with the cases of the Original Debtors.³ The Debtors continue to operate their respective businesses as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.

On May 5, 2009, an Official Committee of Unsecured Creditors (the "Creditors' Committee") was formed. By order, dated May 1, 2009, the Court approved the Debtors' motion to retain Capstone Advisory Group ("Capstone") to provide financial consulting and advisory services to the Debtors. On May 20, 2009, subject to the submission of an agreed-upon order, the Court approved the retention of Greenhill & Co., LLC ("Greenhill"), as the Debtors' investment advisor.⁴

On May 14, 2009, the Debtors filed a motion seeking to reject executory contracts and unexpired leases affecting 789 domestic car dealerships. The motion is currently scheduled to be heard on June 3, 2009.

The Debtors and their non-debtor direct and indirect subsidiaries (collectively, the "Chrysler Companies") comprise one of the largest manufacturers and distributors of automobiles and other vehicles, together with related parts and accessories. At the Petition Date, Chrysler had 32 manufacturing and assembly facilities and 24 parts depots worldwide; and in addition, at the Petition Date, it had a network of 3,200 independent dealerships in the United States, with 72% of Chrysler sales occurring in the United States.

Prior to the bankruptcy filing, Chrysler had a worldwide annual production of approximately 2 million vehicles under the Chrysler, Dodge and Jeep® brands. The Debtors primary competitors are other major Original Equipment Manufacturers ("OEM's"). These include domestic OEM's: Ford Motor Company ("Ford") and General Motors Corporation ("GM"), as well as international OEM's that have assembly and/or manufacturing plants in the United States: Toyota Motor Corporation ("Toyota"), Nissan Motor Company ("Nissan"), Honda Motor Company ("Honda"), and Hyundai Motor Company ("Hyundai-Kia").

As of the Petition Date, the Chrysler Companies employed approximately 55,000 hourly and salaried workers, with approximately 70% or 38,500 of that workforce based in the United States. Approximately 70% or 27,600 of the domestic workforce is covered by a collective bargaining agreement. In addition, as of the Petition Date, the Debtors made payments for health care and related benefits to over 106,000 retirees.

For the twelve month period ending December 31, 2008, the revenue recorded for the Chrysler Companies was more than $48.5 billion, with assets of approximately $39.3 billion and liabilities of $55.2 billion. For that same period, the net loss was $16.8 billion.

Chrysler's ultimate parent company is Chrysler Holding LLC ("Holding"). The owners of Holding are Cerberus Capital Management L.P. ("Cerberus") and Daimler AG ("Daimler"). As of the Petition Date, Cerberus or its affiliates held 80.1% of the membership interests in Holding, and Daimler or its affiliates held 19.9% of its membership interests.

Pursuant to an Amended and Restated First Lien Credit Agreement dated as of November 29, 2007 (the "First Lien Credit Agreement")⁵ a $10 billion term loan that matures on August 2, 2013 was made available to Chrysler. JP Morgan Chase Bank N.A. is the administrative agent (the "Administrative Agent") under the First Lien Credit Agreement. Chrysler's obligations under the First Lien Credit Agreement are secured by a security interest in and first lien on substantially all of Chrysler's assets. In addition, those obligations are guaranteed by certain other Debtors. The guarantees by these "other" Debtors are secured by a first priority lien on substantially all of such Debtors' respective assets. On the Petition Date, Chrysler owed the first-lien prepetition lenders (the "First-Lien Lenders") approximately $6.9 billion under that term loan.

In addition, under a Second Lien Credit Agreement (the "Second Lien Credit Agreement"), Chrysler received a $2 billion term loan that is scheduled to mature on February 3, 2014. The $2 billion loan is comprised of $1.5 billion from Daimler Financial, an affiliate of Daimler and $500 million from Madeleine LLC, an affiliate of Cerberus. The Second Lien Credit Agreement provides that these second-lien prepetition lenders hold a second-priority security interest in the same collateral that secures the First Lien Credit Agreement.

In late 2008, Congress promulgated the Emergency Economic Stabilization Act of 2008 ("EESA") Pub.L. NO. 110-343, 122 Stat. 3765 (Oct. 3, 2008) (codified at 12 U.S.C. §§ 5201 et seq.), which established the Troubled Asset Relief Program ("TARP"). TARP authorizes the Secretary of the Treasury to purchase troubled assets to restore confidence in the economy and stimulate the flow of credit.

Pursuant to a Loan and Security Agreement (the "TARP Loan Agreement"), dated as of December 31, 2008, Holding has borrowed $4 billion from the U.S. Treasury for general corporate and working capital, with a maturity of no later than January 2, 2012 (the "TARP Loan").⁶ Holding has also provided the U.S. Treasury with a separate promissory note in the amount of $267 million that matures on January 2, 2012 (the "TARP Note" and, together with the TARP Loan, the "TARP Financing"). As security for the TARP Financing, the U.S. Treasury was granted a first-priority lien on all unencumbered assets and Chrysler's MOPAR⁷ parts inventory, and a third-priority lien on other assets serving as collateral for obligations owed the first and second lien prepetition lenders.

As of the Petition Date, the Debtors estimate that they had approximately $5.34 billion outstanding debt with trade creditors, including domestic and foreign suppliers, shippers, warehousemen and customs brokers.

Restructuring Efforts

In early 2007, prior to filing for bankruptcy, Chrysler initiated an operational restructuring effort that initially met set targets through the first half of 2008. Part of that restructuring included a search for potential partners and strategic alliances that would impact its cost structure and allow it to expand into new products, market segments and geographic locations. Specifically, Chrysler sought a strategic partner with expertise in smaller, more fuel efficient vehicles. Chrysler also sought to increase its size and to have more of a global presence. To that end, in 2007 and 2008, Chrysler discussed and negotiated for potential alliances with GM, Fiat S.p.A ("Fiat"), Nissan, Hyundai-Kia, Toyota, Volkswagen, Tata Motors, GAZ Group, Magna International, Mitsubishi Motors, Honda, Beijing Automotive, Tempo International Group, Hawtai Automobiles and Chery Automobile Co.

In the fall of 2008, a global credit crisis affecting the liquidity markets impacted the availability of loans both to dealers and consumers, resulting in the erosion of consumer confidence and a sharp drop in vehicle sales. Chrysler was forced to use cash reserves to compensate for the reduction in cash flow and the resulting losses. The losses eliminated the gains that Chrysler had made early in its restructuring effort. Moreover, other OEM's were impacted, forcing them to confront their own liquidity issues.

As a result, in late 2008, Chrysler and other entities sought assistance from the government to obtain new financing to fund their operations to carry them through the liquidity crunch. In response, the TARP Financing was provided. Chrysler sought $7 billion and they were given $4 billion. Pursuant to the terms of the loan, Chrysler was required to submit a plan showing that it was able to achieve and sustain long-term viability, energy efficiency, rationalization of costs and competitiveness in the U.S. marketplace (the "Viability Plan"), which would indicate Chrysler's ability to repay the TARP Financing.

The Debtors used the $4 million TARP Loan to operate their business, including paying vendors and other...