Bankruptcy exit could take longer than 60 days

5/14/2009

WASHINGTON - Chrysler LLC's bankruptcy might take years, not the 60 days President Obama's administration has given as a target.

The two-month completion schedule suggested by the administration the day the carmaker filed for bankruptcy protection applies only to a sale of Chrysler's best assets to a new entity to be managed by Italy's Fiat SpA.

After the sale, creditors still would fight over unwanted factories and other assets to recover their money, bankruptcy lawyers said.

"The administration has been clear from the beginning of this process that it expects the new Chrysler-Fiat alliance to emerge from this process in 30 to 60 days," U.S. Treasury spokesman Jenni Engebretsen said. "We continue to remain confident that this will take place."

As a streamlined Chrysler is launched, the remaining entity will be saddled with debt and other liabilities, such as product-defect and asbestos-damage claims. Some claimants may be disappointed as creditors compete to squeeze payments out of the sale of discarded factories, such as the Detroit plant that makes the low-volume Dodge Viper sports car.

"The unsold assets and liabilities may take years to sort out due to the complexities of resolving thousands of commercial, tort, future asbestos, dealership, and employee claims," said Dewey & LeBoeuf LLP partner Martin Bienenstock, who has advised General Motors Corp. and Chrysler Financial on restructuring.

The bulk of assets left in the old Chrysler will be eight factories, valued by Chrysler at $2.3 billion. Those with claims against them include the U.S. government, provider of a $4.5 billion bankruptcy loan, and lenders with an unpaid balance of $4.9 billion on a secured loan.

Groups gearing up to pursue claims against the old Chrysler include retirees, unsecured creditors, consumer victims, and mesothelioma and lung-cancer sufferers, according to court filings. The old Chrysler's balance sheet will have $611 million of "product liabilities," according to court filings. The secured lenders, a group of about 45 creditors owed $6.9 billion, would get $2 billion that the government proposes to pay for assets securing their loans.