A Chrysler Bankruptcy Won't Be Quick (Analysis by Harvard Bankruptcy Atty)

[Sgent]

sterday, Chrysler filed for Chapter 11 bankruptcy protection in preparation for a partnership with Italy's Fiat. President Barack Obama says he hopes the bankruptcy proceeding will be quick and efficient, and that the Fiat deal "will give Chrysler a chance not only to survive, but to thrive in a global auto industry."

I hope so too. But a Chrysler bankruptcy has many moving parts -- and with Chrysler unable to make money selling cars, it just doesn't have enough nongovernment cash to grease those moving parts to facilitate a smooth bankruptcy. Chrysler is in worse shape than GM. And remember, Fiat has yet to offer a penny for its 20% share in Chrysler. Thus far, it's only offering access to its fuel-efficient technology.

This could get messy. First off, in a bankruptcy any single creditor is entitled to get the liquidation value of its claim. So any creditor can assert that what it would get if Chrysler sold its factories quickly would be more than the 32 cents per dollar that Treasury had guaranteed Chrysler's secured creditors before the government deal fell apart this week.

Valuation proceedings are notoriously difficult in Chapter 11. Although the judge doesn't actually need to liquidate Chrysler, the judge must determine what it would have gone for if there were a liquidation. Some creditors appeared ready to bring that case to the bankruptcy judge.

http://online.wsj.com/article/SB124113528027275219.html

[ColesCountyDem]

1. Judges have great latitude in determining 'value' in bankruptcy.

As the article points out, the 'value' of a secured creditor's claim can be extremely difficult to determine; thus, bankruptcy judges are normally accorded wide latitude in doing so. In many reorganization bankruptcies, the practical effect of this is to silence or smack down individual creditors whose insistence on being paid more than other similarly positioned secured creditors, especially when that insistence threatens to kill an otherwise reasonable plan of reorganization.

[liberal N proud]

2. Liquidation value of factories would require someone who would buy them

If there isn't a buyer, the liquidation value isn't there.

[ColesCountyDem]

3. Exactly!

If no one's willing to buy it, its 'value' is squat.

[safeinOhio]

4. and that's what the bond holders would get. No winners?

[ColesCountyDem]

6. No, they would get whatever all creditors in their class get.

That's where the valuation comes in.

:)

[indypaul]

5. Winners-lawyers Losers-everyone else. n/t