CHRYSLER QUIEBRA-2

Chrysler Begins Voyage Down Bankruptcy Route

Katie Orlinsky for The New York Times

Thomas Lauria, front, who represents a committee of the secured creditors, didn’t raise any objections to various motions Friday.

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By ZACHERY KOUWE

Published: May 1, 2009

Deliberations on the fate of Chrysler shifted from Washington to a Manhattan courtroom on Friday as lawyers for the automaker sought to clear the way through bankruptcy, sell or transfer Chrysler’s operations, and keep paying its workers their salaries and benefits.

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Chrysler Bankruptcy Filing

Katie Orlinsky for The New York Times

Ronald E. Kolka, the chief financial officer, leaving a hearing after the company began reorganization proceedings Friday at the United States Bankruptcy Court in Manhattan.

Chrysler, the third-largest American automaker, filed for bankruptcy on Thursday after months of negotiations with regulators, unions and creditors fell apart when a small group of debt- holders balked at the government’s final terms for an out-of-court restructuring.

Chrysler’s next steps toward settling with its creditors and completing an alliance with the automaker Fiat are taking place in the courtroom of Judge Arthur J. Gonzalez of United States Bankruptcy Court, who received a series of motions from Chrysler’s lawyers Friday morning.

In addition to asking to protect employee wages, which total about $60 million, and basically keep operating, lawyers sought to keep Chrysler’s warranties in place, an effort to reassure current and prospective customers they can still safely buy Chrysler and Jeep products. Lawyers for the automaker said they wanted to move quickly.

“I don’t think that any American can doubt these are extraordinary times,” said Corinne Ball of Jones Day, Chrysler’s lead bankruptcy lawyer. “We have to move at a high speed.” Chrysler’s 22 plants in the United States are to be idled at the end of the day Friday, Ms. Ball said.

As part of its reorganization, Chrysler said Friday that it planned to shut eight plants permanently, lay off about 6,500 workers and close an unspecified number of dealerships.

Judge Gonzalez granted Chrysler’s request to use its existing cash management system, which would enable the company to transfer money to other subsidiaries to keep operating.

Lawyers for various constituencies, including banks, car dealerships, hedge funds, parts makers and others have been working around the clock readying their arguments to make sure their interests are protected in court.

Thomas E. Lauria of the law firm White & Case, who represents a committee of the secured creditors, declined to comment to reporters and did not raise any objections to the motions at the hearing. It is still unclear whether the group, which includes Oaktree Capital Management, OppenheimerFunds, Stairway Capital Management, Schultze Asset Management, Group G Capital Partners and the TCW Group, will object to Chrysler’s restructuring plan at the continuation of the case next week.

The lenders, who say they believe they are being treated unfairly in the process, may request that Chrysler be liquidated. But, according to the company’s own analysis, a liquidation would cost more than $2 billion and there are unlikely to be many buyers for Chrysler’s assets.

More than a dozen photographers and television crews swarmed lawyers and others as they were leaving the courtroom after the hearing.

Chrysler’s chief financial officer, Ronald E. Kolka, and other executives quickly jumped into a minivan waiting outside the courthouse.

Ms. Ball and her team of lawyers from Jones Day attracted a swarm of reporters and photographers, who followed them down into a subway station after the hearing. As they stepped on the train, other riders began asking whether a celebrity had just come aboard.

Judge Gonzalez has experience with major bankruptcy cases, having overseen the reorganization of Enron in 2001, which set a record by filing for bankruptcy with $63 billion in assets, and WorldCom in 2002, which topped Enron with $107 billion assets when it filed.

Court documents filed by Chrysler in New York on Thursday showed that Chrysler’s re-emergence from bankruptcy could take until Aug. 28, or four months from now.

Bankruptcy always contains some element of unpredictability, and the debtholders who oppose the new arrangement could argue in court that the company is worth more to them in liquidation.

No light was shed at Friday’s hearing on how quickly the proceedings might play out.

Administration officials said they believed that it was highly unlikely that a bankruptcy court judge would side with the minority when those holding 70 percent of the debt had signed off on the arrangement.

Micheline Maynard and Jack Healy contributed rep