Wednesday May 27, 01:49 PM
Chrysler faces D-Day as GM nears bankruptcy
NEW YORK (AFP) - Chrysler (Xetra: 710000 - news) faces its day of judgment Wednesday as a bankruptcy court judge rules on a sale of its key assets to give the ailing automaker a fresh start in a partnership with Italy's Fiat (Milan: F.MI - news) .
If Judge Arthur Gonzalez approves the fast-track plan, a new Chrysler could emerge within days, according to President Barack Obama's administration, which is spearheading the plan and providing emergency funding.
The developments at Chrysler are seen as critical for General Motors (NYSE: GM - news) , which is also living off government loans and scrambling ahead of a June 1 deadline that will likely lead to a bankruptcy filing.
In the Chrysler case, a US Treasury court filing last week said that if the plan is approved by Gonzalez, the sale would likely close by Friday "and the launch of a new Chrysler achieved."
A source familiar with talks on Chrysler said the rebirth of the new firm was now "pretty close," adding: "It won't be this week necessarily but it should be close."
A ruling was expected at around 1400 GMT.
Although the "old" Chrysler may still be subject to court supervision, the new firm led by Fiat executives would be able to begin operations with Chrysler's plants and workers, but freed of much of its debts and legacy costs.
The third-largest US automaker was forced to file for bankruptcy protection on April 30 and agreed to an alliance with Fiat that will initially give the Italian company a 20 percent stake.
In return, Fiat will allow access to its technology to enable the US carmaker to make the smaller, greener cars that are increasingly in demand.
The US Treasury has provided Chrysler with some nine billion dollars in emergency aid. Fiat must repay this money if it wants to take a majority stake in the Detroit (DETROIT.SN - news) firm.
Chrysler cleared a potential hurdle Tuesday as a district court judge rejected an effort to take the case out of bankruptcy court for a full hearing on the legal rights of some creditors.
The ruling in New York federal court opened the door for Wednesday's hearing before Gonzalez on the fast-track plan.
Any delay would have been a major setback for Chrysler and the Obama administration, which aims for a rapid bankruptcy exit to restart factories and revamp operations.
Robert Kidder, ex-chairman of Borden Chemical and Duracell International, was to take over as chairman at Chrysler from Robert Nardelli upon the exit from bankruptcy.
Fiat chief executive Sergio Marchionne was expected to hold the same title at Chrysler after its bankruptcy exit.
GM meanwhile was widely expected to file for bankruptcy protection ahead of a June 1 deadline imposed by the Obama administration, which is providing GM with emergency cash.
However a source familiar with the talks said the GM road to bankruptcy was expected to be thornier than Chrysler's.
"We do expect it to be a more complicated process and a longer process (in bankruptcy)," said the source on condition of anonymity.
In the cases of both GM and Chrysler, a major legal question is whether holders of bonds and other forms of secured debt can be forced into bigger concessions than other stakeholders.
GM bondholders have balked at a plan that would give them some 10 percent of the new company in exchange for 27 billion dollars in debt.
Some legal and financial analysts argue that the GM and Chrysler plans set a dangerous precedent by wiping out more debts from secured financial creditors, which should be given priority in bankruptcy.
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