Reporters and lawyers wait Monday to enter U.S. Bankruptcy Court in New York for the start of Chrysler's bankruptcy case. The automaker received $4.5 billion in government loans, called a "lifeline." (Seth Wenig / Associated Press)
New York -- A federal bankruptcy judge Monday allowed Chrysler LLC to tap $4.5 billion in U.S. and Canadian government loans to finance its stay in bankruptcy, but a top company adviser warned that it's "highly unlikely" the company will repay them.
U.S. Bankruptcy Judge Arthur Gonzalez rejected a request by dissident creditors to deny Chrysler use of the loan money.
"You don't present an alternative," he said, authorizing the interim use of the full loan and immediate access to $1.8 billion.
Corinne Ball, Chrysler's lead bankruptcy attorney, called the $4.5 billion loan a "lifeline" for the Auburn Hills-based automaker, urging the judge "to let this company live."
"The survival of Chrysler's business is at stake in these proceedings, as is the fate of hundreds of suppliers and thousands of Chrysler dealers around the country," Ball said.
Chrysler filed for Chapter 11 bankruptcy Thursday.
In other developments Monday:
Gonzales assured the disgruntled creditors, the primary obstacle standing between Chrysler and a 30- to 60-day trip through bankruptcy court, that they'll get their day in court.
"You have rights," he said.
The dissident creditors, holding roughly 10 percent of Chrysler's $6.9 billion first-lien debt, are the company's biggest obstacle in making a speedy exit from bankruptcy court.
The Treasury Department convinced the four major banks holding 70 percent of Chrysler's secured debt to accept $2 billion in cash for the $6.9 billion.
Gonzales called the government aid "below market value" financing, and said it doesn't tie his hands or stifle creditors' efforts to recover more money.
A hearing to establish bidding procedures to quickly auction off Chrysler's "good" assets, was delayed until today.
Under the terms of Chrysler's reorganization effort, it plans to use Section 363(b) of the bankruptcy code to quickly sell its "good" assets into a new company, leaving behind bad assets including eight plants and a chunk of the company's dealer network.
Monday's hearing lasted more than eight hours. Chrysler called a lineup of company executives and dealers to warn that a long stay in bankruptcy could severely harm it or put it out of business.
Chrysler has cut 400 dealers -- more than 10 percent -- since January 2008 and now has fewer than 3,200. It is losing 30-40 dealers a month, but did not disclose how many dealers it will seek to prune during bankruptcy.
Ron Manzo of Capstone Financial Group, a Chrysler financial adviser who wrote the company's bankruptcy budget, noted that the loan terms are very favorable to Chrysler: The U.S. and Canadian governments are not charging interest on the $4.5 billion of so-called debtor-in-possession financing.
Attorney Ball and Chrysler officials declined to comment on Manzo's assessment that repayment of the $4.5 billion is "highly unlikely."
In court papers fielded last week, Chrysler said it expects the U.S. Treasury to forgive the $4 billion loan made in January. A senior Obama administration official didn't dispute that assessment, but declined to comment on whether Treasury would recover any of the $4.5 billion in debtor-in-possession financing.
The U.S. Treasury and Canadian government agreed last week to loan Chrysler $10.5 billion to restructure and complete a tie-up with Italian automaker Fiat SpA.
But Fiat would have to repay $6 billion in loans that would be made after Chrysler emerges from bankruptcy before it could take a majority stake in Chrysler.
Louis Aguilar and Alisa Priddle contributed. dshepardson@detnews.com">dshepardson@detnews.com (202) 662-8735
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