Chrysler Lenders (Non-TARP) Come Out with Guns Blazing

As expected, the first salvo in the Chrysler war was fired today by the now infamous and much maligned Non-TARP secured lenders (the group represented by Tom Lauria of White & Case). Just hitting the Chrysler bankruptcy docket is an objection filed by W&C on behalf of its clients, objecting to the 363 asset sale. The filing is attached below (and linked here). Some very harsh language with regards to Uncle Sam in there. And as a lot of lawyers were working all night to put this together, the filing includes the following loophole "The Preliminary Objection was filed on very short notice. The Chrysler Non-TARP Lenders reserve the right, and intend, to submit a more detailed objection as time permits." As this case will be flying at alarming speed, expect to see a lot of hypercaffeinated, underslept lawyers on speed at the court hearings.

Some highlights from the filing:

Separate and apart from the lack of due process and any infirmities in the bidding procedures themselves, the Sale Motion should be denied because it seeks approval of a sale that cannot be approved under the Bankruptcy Code. In short, the Court should not permit a patently illegal sales process to go forward. Among other things, the sale proposed by the Debtors constitutes an impermissible sub rosa plan of reorganization that strips the Chrysler Senior Lenders of the protections of section 1129(a) of title 11 of the United States Code (the “Bankruptcy Code”) and improperly attempts to extinguish their property rights without their consent. Further, the sale does not comply with section 363(f) of the Bankruptcy Code and was not proposed in good faith. Indeed, the sale is far from an arm’s length transaction, but rather, is the result of a tainted sales process dominated by the United States government. Under these circumstances, the Sale Motion should be denied.

The summary of the grounds for the objection:

1. The Proposed Sale Constitutes an Illegal Sub Rosa Plan that Redistributes Value Among Creditor Classes.

2. The Proposed Sale Fails the Requirement of Section 363(f).

3. The Sale Is Not Proposed In Good Faith.

4. The Taking of Collateral through a Direct or Indirect Use of TARP Authority is Unconstitutional. (This one is Huge as it sets a case law precedent.)

The issue at play here is that Judge Gonzalez will have to step into a role as a constitutional lawyer much more so than a bankruptcy judge, which should make i) his life interesting over the next 30 - 3000 days (depending on how long the case drags for), and ii) the hearing of the 363 asset sale more fun and exciting than any soap opera on TV. We will keep readers posted on when that is slated to occur.

Comments

[yellowhoard:]

I'm guessing 3000 days will be more like it.

May 04 11:35 AM

[elcopone:]

To a degree, this what makes the US so great. The ability of laws and precendent to (hopefully) guide legal outcomes. As opposed to political agendas guiding legal rulings. I hope the judge sticks to the laws and judges the case as an impartial party with no biases. The fact is that regardless of how Obama wants the bankruptcy to go, laws must still be followed and these non-tarp creditors deserve their fair shake.

May 04 12:34 PM

[Whippet:]

We'll see how the current "greatness" of the US measures up with this one. I don't envy this judge one bit- a bankruptcy court judge having to dabble in Constitutional law, with no positive outcome for him either way (hopefully the New York Times will cease to exist to drag him through the mud when it's over, if it goes that way.)

Ironic that Tom Lauria is a lifelong Democrat who gave $10K to Democratic senatorial campaign funds, eh? Guess that doesn't stack up to Gettelfinger and the UAW.

May 04 12:41 PM

[conceptwizard:]

There is no way outside of a Presidental Order that this is getting done in 60 days. Unless all kinds of atrocities are committed against laws and legislation passed to protect everyone. This could possibly be the first giant spike in the Obama coffin. Government has its hands way to far up the tunnel on this one.

May 04 12:53 PM

[bricki:]

Now we will see if we are still a Republic.

May 04 03:52 PM

[Between The...:]

This is pretty much what I discussed in this article "Politically powerful unions a new class of senior debt?"
seekingalpha.com/artic...
If the cramdown succeeds, and senior debt holders are fleeced, then expect that no future union dominated company will ever be truly healthy again. Yes, that may seem harsh, but debt markets, once burned so thoroughly by political concerns, will not likely lend again at anything reasonable to such corporations. In the long run, only the governement will lend to these companies, before or after bankruptcy, creating effective nationalization.

May 04 05:30 PM

[Oregonrain:]

This is good stuff..Tyler..thanks. Hey good thing the judge has a life time appointment (I think).

If I were the judge I would say to the "non-Tarp lenders"...so what is your plan? Are you going to grab the collateral (as they probably have a right to do) and then what? Are you just going to have a fire sale?

They will end up owning a lot of well...I think crap would be the technical term. Or is this just a stickup play? You know hold out long enough to either destroy any chance of the company moving ahead for a few more cents on the dollar? (shakes head YES)

I know I know...that is their job. But really, who here thinks the secured creditors really want to execute on the collateral and sell it in a fire sale let alone try to run this POS.

So my prediction is that there will be push back by the judge as there should be...these guys will get some more money...as maybe they should...and the whole thing moves ahead. Then it crashes in the next year or so.

May 04 11:08 PM

[User 386342:]

Oregonian: The non-TARP group sought to negotiate an out of court deal with the task force after the TARP lenders folded. Their opening bid was for them to take a 40% haircut. That was "flatly rejected or ignored" according to the group.

May 05 09:05 AM

[john s. gordon:]

yellohoard-
yes this shootout @ the OK corral may indeed last 3000 days.
> jack

May 05 09:20 AM

[henarl:]

In our overly litigious justice system, it will be the attorneys who come out the winners in this scenario. Regardless of how the lower court rules, it will be appealed and re-appealed. Look for a final Supreme Court ruling sometime in 2010 or 2011. It might go Obama's way if he can get enough of his people on the Court by then.

May 05 02:15 PM

[PMZ:]

This case should hit the Supreme court just in time for Obamas new appointee to cast the swing vote.

May 05 04:58 PM

[yellowhoard:]

Good point. Although Obama will need two or three new fellow travelers on the Supreme Court to win this one.

Another good reason for the lower court to drag its feet.


On May 05 04:58 PM PMZ wrote:

> This case should hit the Supreme court just in time for Obamas new
> appointee to cast the swing vote.

May 05 06:02 PM