The 21 day scorecard of the Chrysler bankruptcy looks very good for Chrysler and its success in achieving the sale of the operating assets to “New Chrysler”. However, there are some dark clouds on the horizon.

  1. First Day Motions (including motions filed on the second day):    25
  2. Motions Opposed:    7
  3. Motion Opposition Withdrawn/Resolved/Abandoned:    5
  4. Motions Granted (Final): 23
  5. Motions Denied: 0
  6. Motions Pending/Granted Interim: 2

Jones Day, old Chrysler’s bankruptcy counsel, seems to have taken a “pick your battles” approach to the resolutions of objections. Instead of burdening the bankruptcy judge with having to consider objections, Jones Day made it a mission to present as “unopposed” as many first day motions as possible.  There was, however, one blemish on an otherwise undefeated record.

For example, Jones Day fielded 14 objections to the motion to allow payment of 503(b)(9) administrative claims, 5 objections to the “essential vendor” pre-petition claims payment motion and 16 objections to the Debtor in Possession financing motion. Through “clarifications” to opposing counsel and slight modifications to the proposed forms of orders, Jones Day resolved essentially all of the objections.

Jones Day has not been able to resolve objections to 2 of the first day motions. One outstanding motion relates solely to utilities and seeks pre-empt any claim for cash deposits as “adequate assurance” for payment.

The other outstanding first day motion seeks to preclude parts suppliers from claiming possessory liens on “production tooling”, such as jigs, dies, gauges, molds, patterns and fixtures. Chrysler’s concern is that its “attempts to recover Production Tooling may be complicated by the fact that many Tier 1 Suppliers will attempt to assert liens on such tooling.”  Under certain state’s laws (for example Michigan’s), suppliers in possession of customer provided tooling may have a lien on such tooling for certain unpaid amounts due from the customer.

Rather than force the issue, Jones Day has postponed a showdown in hopes of resolving the objections itself.

The above score board does includes the motion filed by Chrysler on May 3, 2009, establishing the bidding and other procedures related to the sale of the assets of old Chrysler to new Chrysler. The court granted that motion on May 7, 2009. There have been numerous objections to the any proposed asset sale that may arise out of those procedures.

Old Chrysler and Jones Day also had some good fortune in the form of the disbanding of the Non-TARP Lenders opposition group. Although the “Indiana Pensioners” are attempting to take up the banner with a late flurry of motions and maneuvers, a tremendous amount of momentum has been lost and, procedurally, the Indiana Pensioners are in trouble.

The Indiana Pensioners are separate and distinct from the former Non-TARP Lenders group. The Indiana Pensioners are unable to claim as their own the objections filed by the Non-TARP Lenders. The point has not been lost on the bankruptcy court. At the hearing on May 20, 2009, counsel for the Indiana Pensioners was asked by the court if they had filed any objection to the motion for DIP Financing or to approve Asset Sale Procedures. The response was “no”, followed by a request for leave to file an objection, which request was denied.

The Indiana Pensioners also have to deal with a very serious standing problem. Under the terms of the credit facility in which the Indiana Pensioners participated in making the loans to Chrysler, an agent was appointed as the exclusive authority to act for all the lenders. That agent is opposing the challenge of the Indiana Pensioners.

Overall, it has been a very good first 21 days for old Chrysler. There are, however, some dark clouds on the horizon.

While the odds now favor the successful 365 sale of assets from old Chrysler to new Chrysler, a huge mess will be left behind in old Chrysler for the bankruptcy court to deal with.

For new Chrysler the situation will not be easy either. Fiat has to be feeling like the dog that caught the car.

Jone Day also suffered one direct loss.  In their motion to be appointed as counsel for Chrysler, Jones Day initially had requested “super priority” status for the payment of its fees.  The US Trustee objected and the request was removed from the final order.  At the May 20, 2009 hearing, Jones Day advised the court of the withdrawal of the “super priority” request.  The court, however, registered its displeasure noting that the request was not properly presented with the required showing for such a request to be made.  The message was clear – this judge is going to hold everyone to the same tough standard – don’t present it unless you are prepared to defend it.

Finally, there are definitely some dark clouds on the horizon. Chrysler recently sent out “Cure Cost” notices to suppliers. These notices have stirred up a hornets nest of objections that give pause to anyone assessing the Chrysler prospects.

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