As widely reported, on April 30, 2009, (the Petition Date), Chrysler LLC and its 24 domestic and indirect subsidiaries (the Debtors) filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the Court). Through these filings, the Debtors seek to reorganize their businesses in the next 60 to 90 days with a $4.1 billion DIP loan and a going concern sale transaction of their operating assets (the Sale Transaction) to Fiat S.p.A (or a competing bidder), financially backed by the United States Treasury and the Canadian government. Drinker Biddle has the resources to assist you in responding to this fast-moving case facilitated through our office at 140 Broadway, New York, N.Y., four blocks from the Court.
On the Petition Date, the Debtors filed 20 first-day motions, of which four were heard on May 1, with most of the balance heard on May 4, 5 and 6, 2009.
This update sets forth a summary of the relief sought and/or granted in certain motions that may be of interest to you, as well as some of the upcoming events in these cases.
Reclamation and 20 -Day Priority Motions
The Debtors’ two motions seek to establish exclusive procedures for (i) the reconciliation and allowance of reclamation claims (the Reclamation Motion) and (ii) the assertion and determination of claims relating to goods received by the Debtors in the 20 days before the Petition Date (the 20-Day Priority Motion).
The Reclamation Motion requires that a copy of the reclamation letter that is sent to the Debtors also be sent to Chrysler LLC, Reclamation Demand Processing Department, c/o Epiq Systems, Inc., 757 Third Avenue, Third Floor, New York, NY 10017. The Debtors will respond to the letters within 120 days from the Petition Date, and the response will inform each claimant of the amount the Debtors believe is a valid reclamation claim. Claimants then will have an opportunity to object to the amount designated by the Debtors, and the Debtors are authorized to negotiate and resolve any reclamation claims.
In the 20-Day Priority Motion, the Debtors have asked that the deadline for filing these claims be the same general bar date set for the filing of all prepetition claims (which date, not yet specified, they propose to be set subsequent to the July 14, 2009, extension date they had sought to file their schedules and statements of financial affairs) and that claimants utilize the proof of claim form to be developed as part of the general bar date process. To the extent that a claimant’s 20–day claim is allowed, it will be paid pursuant to a confirmed plan.
The relief requested by these two motions was granted by interim orders entered May 5, 2009, with the final hearings scheduled for May 20, 2009.
Essential Creditors Motion
The Debtors are asking for the authority: (i) in their sole discretion and subject to the terms and conditions set forth, to pay, in the ordinary course of their businesses, certain prepetition unsecured nonpriority claims (collectively, the Essential Supplier Claims) of certain parties who supply goods or services critical to the going concern value of the Debtors’ businesses or the consummation of the Sale Transaction (collectively, the Essential Suppliers); (ii) in their sole discretion, to pay claims for the value of goods received by the Debtors in the ordinary course of their businesses during the 20-day period prior to the Petition Date; (iii) to (a) continue their Troubled Supplier program (the Troubled Supplier Program) and (b) in their sole discretion and subject to the terms and conditions set forth in the motion, pay certain prepetition unsecured nonpriority claims of certain troubled suppliers; (iv) to implement procedures to address those vendors who repudiate and refuse to honor their postpetition contractual obligations to the Debtors; and (v) to continue their participation in the Auto Supplier Support Program established by the U.S. Treasury to the extent the program remains in place after the Petition Date.
In essence, this Motion will provide the Debtors the ability to pay a vendor’s prepetition claims if, in the Debtors’ business judgment, the vendor’s product or service is critically needed to produce vehicles.
The relief requested by this motion was granted by an interim order entered May 5, 2009, and each recipient of a payment is now required to continue its business relationship with the Debtors, pending the closing of the Sale Transaction, and, after the closing, with the successful purchaser. The final hearing is scheduled for May 20, 2009.
DIP Financing Motion
By Interim Order entered May 5, 2009, the Debtors obtained approval, as of the Petition Date, for Chrysler LLC to obtain interim postpetition financing of up to $1.4 billion (of a $4.1 billion credit facility) from the U.S. Treasury and Export Development Canada, on a super-priority and secured basis. The hearing for final approval of the DIP motion is set for May 20, 2009.
Sale Transaction Motion
On Sunday, May 3, 2009, the Debtors filed a motion to approve the proposed Sale Transaction with Fiat, approve the assumption and assignment of executory contracts and leases, and establish procedures for other interested parties to bid against Fiat for their assets. The Debtors also filed without exhibits their proposed Purchase Agreement with Fiat. To consummate the Sale Transaction Fiat has established a new Delaware LLC (New Chrysler) to purchase substantially all of Chrysler’s operating assets. New Chrysler will be owned jointly by: (i) a voluntary employee beneficiary association set up for the benefit of Chrysler’s employees, retirees and beneficiaries (55 percent); (ii) the U.S. Treasury (8 percent); (iii) the Canadian Government (2 percent); and (iv) Fiat (20 percent). Fiat’s interest in New Chrysler will increase to 35 percent upon New Chrysler achieving certain milestones.
The Debtors have proposed the following procedures for parties interested in bidding on their operating assets:
- To participate in the auction, interested bidders must submit, by May 11, 2009, at 4:00 pm (EDT), a confidentiality agreement and a statement indicating bona fide interest in purchasing the Debtors’ assets. If the Debtors, in consultation with the Creditors’ Committee, the UAW and the U.S. Treasury, determine that an entity has a bona fide interest in purchasing the Debtors’ assets, the Debtors will release certain confidential materials, due diligence and data regarding the assets to the interested bidder.
- Potential bidders will have until 5:00 pm (EDT) on May 15, 2009, (the Bid Deadline) to submit a bid. Potential bidders will have until the Bid Deadline to request additional due diligence.
- To be a “Qualified Bid,” bids must be received by the Bid Deadline and must, among other things: (a) offer to purchase all or substantially all of the Debtors’ operating assets on terms and conditions set forth in an agreement substantially similar to the Purchase Agreement with Fiat; (b) not be subject to any due diligence or financing contingencies; (c) assume the collective bargaining agreements with the UAW; (d) provide net consideration to the Debtors’ estates of at least $100 million more than the Fiat proposal plus the amount of a “Break-Up Fee”; (e) provide financing programs for the Debtors’ dealers and customers; and (f) include a list of executory contracts and leases to be assumed and assigned along with a commitment to pay cure costs. Interested bidders must also include by the Bid Deadline written evidence of their ability to close the transaction and a cash deposit equal to 10 percent of the proposed purchase price set forth in the bid.
- After receipt of Qualified Bids, if any, the Debtors, after consultation with the Creditors’ Committee, the U.S. Treasury and the UAW, will determine the Lead Bid. At the hearing to approve the sale (the Sale Hearing), the Debtors will announce the Lead Bid. If other Qualified Bidders express an interest in bidding against the Lead Bid, the Debtors will conduct a Court-supervised Auction. Fiat is deemed to be a Qualified Bidder.
- At the conclusion of the auction, the winning bidder will be deemed the “Successful Bidder” and the Debtors will proceed with the Sale Hearing to confirm the winning Bid on or before June 1, 2009. If no auction is conducted, the Lead Bid will be deemed the Successful Bid. If Fiat is not the Successful Bidder, it will be entitled to a Break-Up Fee equal to $35 million.
The Debtors have also requested authority to assume and assign certain of the their executory contracts and leases to the purchaser of their assets. No later than 13 days prior to the Sale Hearing, the Debtors will file a list of the executory contracts and leases that they propose to assume and assign to the purchaser. The Debtors will also serve a notice via overnight mail on each non-debtor counterparty to such contract or lease of their intent to assume and assign such contract or lease and the proposed cure amount. The Debtors may also designate additional executory contracts and leases to be assumed and assigned to the purchaser up to 90 days after the closing of the Sale Transaction by serving an assignment notice on the non-debtor counterparty to the contract. The purchaser may exclude any contract that was previously designated at any time up to 90 days following closing. The counter-parties to the designated contracts will have 10 days following service by the Debtors of the notice to assume and assign their contract or lease to object to the cure amount or the assumption and assignment of their contract or lease. If a counter-party to a contract or lease does not object to the cure amount or the assumption and assignment of their contract or lease, the party shall be deemed to have agreed to the assumption and assignment and the proposed cure amount. Under Fiat’s Purchase Agreement, Fiat will assume all outstanding accounts receivable related to assumed contracts and leases.
The Court approved bidding procedures after a hearing on May 5.
As you can see, the potential exists for many issues to arise regarding the Debtors’ stakeholders and other interested parties.