NEW YORK (May 5, 2009) — Chrysler L.L.C. received bankruptcy court approval for $4.6 billion in debtor-in-possession financing today to pay make payments to dealers and suppliers and to buy time to complete an alliance with Fiat S.p.A.
Bankruptcy Judge Arthur Gonzalez approved the life-giving financing in spite of vigorous objections from a minority group of dissident bondholders. Those bondholders, who hold about $3 billion of Chrysler's $6.9 billion in secured loans, argued that if a Fiat deal falls apart, the Chrysler assets backing those loans would be diminished.
The U.S. Treasury will supply $4.1 billion of the bankruptcy operating funds. New York banks holding about $4 billion in Chrysler secured loans will supply another $400 million. The rest will come from the sale of parts in inventory at Chrysler's replacement components business, Mopar.
Chrysler plans to use $1.49 billion of the funds to pay suppliers for parts delivered before Chrysler filed for Chapter 11 bankruptcy protection last week. The total pre-petition amount owed to suppliers was $1.71 billion.
Another $753 million will go to Chrysler dealers to pay for sales incentives owed them for vehicle sales before the bankruptcy filing.
The company makes the incentive payments to dealers weekly. As dealers sell cars, the incentives are electronically credited to the dealers' accounts. The company posts the incentive payments to dealer accounts every Sunday evening.
"With the Judge's interim approval today of Chrysler's DIP financing, the company will have $753 million available for the 13-week forecast period and will determine how those funds are paid," said company spokeswoman Lori McTavish.
Chrysler adviser Robert Manzo said Chrysler had sought $1 billion for the dealer incentive payments but scaled the figure back to $753 million after discussions with the U.S. Treasury. That amounts to a 25 percent cut.
Chrysler has not said how it will decide which dealers will continue with the new company and which ones will not. Chrysler co-President Jim Press last week asked dealers to be patient while a list was assembled.
As of March 31, Chrysler had 3,215 dealers. If it cuts out payments to 25 percent of its dealers, that means more than 800 dealers won't receive the payments. In court filings, the company also said its overall incentive spend would be reduced 50 percent from June 1 to July 5, which would be the second month of a possible 60-day reorganization.
Chrysler has budgeted $477 million for incentives for the first four weeks, peaking at $147 million for the week of May 25. Factories, which have already closed, will not be making new cars during the period.
The company had said in earlier filings today it won't make incentive payments to all of its dealers. Chrysler said it will "only pay incentives to those dealers that they believe have value to the acquiring company," to be controlled by Fiat. Chrysler hasn't said how it will measure that value.
Manzo spoke on Chrysler's behalf as executive director with Capstone Advisory Group L.L.C., a financial advisory firm.
He also said Chrysler's 11,000 salaried employees would take two weeks of unpaid leave during the bankruptcy, saving the auto maker about $21 million.