Yesterday, U.S. Bankruptcy Judge Arthur Gonzalez approved a motion by Chrysler LLC requesting that GMAC LLC become the preferred lender for its dealer network, and be permitted to provide wholesale, retail and other product-related financing for Chrysler dealers and customers to purchase vehicles. Chrysler Financial, which had provided over 60 percent of financing to Chrysler dealers, halted predominantly all of its lending after Chrysler filed for bankruptcy protection on April 30, precipitating a situation in which Chrysler dealers could potentially run out of working capital. The GMAC agreement and the Chrysler term sheet are filed under seal.
Chrysler Financial entered an objection to Chrysler's motion, arguing that Chrysler Financial had not been provided with the Chrysler term sheet and furthermore, that GMAC could not finance Chrysler dealers without Chrysler Financial's consent. However, it appears that Chrysler Financial compromised its objections and submitted a motion to enter into a new risk-sharing agreement with Chrysler, to which the Unsecured Creditors Committee objected. Under the proposed risk-sharing agreement, Chrysler Financial would consent to the GMAC financing arrangement, "in exchange for various agreements, including, among others, the return of [collateral] to Chrysler Financial." Evidently, Judge Gonzalez approved the compromise with Chrysler Financial, though it is not clear on what terms, as some published sources indicate that the Judge's written order will not be issued until the final agreements are presented.