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How Chrysler Bankruptcy Could Unfold

ROBERT SIEGEL, host:

From NPR News this is ALL THINGS CONSIDERED. I'm Robert Siegel.

For the next several weeks, we are likely to hear a lot about bankruptcy: what will Chrysler's creditors, vendors, contractors, employees get in federal bankruptcy court? Well, one thing we know is who'll be deciding - U.S. bankruptcy Judge Arthur Gonzalez, who spent years sorting the remains of Enron and Worldcom and their bankruptcies.

Attorney Steven Loden is familiar with both those proceedings. He worked on both Enron's and Worldcom's bankruptcies, and joins us now from Houston.

Hi, welcome to the program.

Mr. STEVEN LODEN (Attorney, Diamond McCarthy): Good to be with you.

SIEGEL: In the annals of U.S. bankruptcies, how big is Chrysler compared to what's happened before?

Mr. LODEN: Well, it certainly ranks at the top of the list. I'm not sure in terms of assets involved where it would rank. But given the profile of the case, plus the fact that this is the first automotive bankruptcy in the United States since Studebaker filed back in the '30s, this ranks right up at the top.

SIEGEL: Now, President Obama has talked about what he hopes will be a very quick proceeding, 30 to 60 days. Bob Nardelli, the head of Chrysler, seemed to think that sounded pretty fast to him. Is it feasible? Would it be a record-breaking speed?

Mr. LODEN: I think it's certainly feasible for the sale to Fiat to be closed within that time period, and for a substantial amount of the bankruptcy work to be concluded. I think it's a bit unrealistic to expect that all creditors' claims will be fully resolved and paid out within 30 to 60 days; that would be really quick.

SIEGEL: And the sequence here might very well be, as you say, doing the sale to Fiat first, with many outstanding issues still to be resolved in court.

Mr. LODEN: That's correct. Generally the way it would happen in this type of case, bearing in mind that I'm not intimately familiar with the Chrysler case, but in cases like this - it appears that Chrysler is going to pursue a sale of its factories, and substantially all of its assets to a new company created between Chrysler and Fiat. And that sale would be heard by Judge Gonzalez. Everyone who has an interest in the case would have a chance to be heard. But once that sale is completed, if the judge approves it, those assets would transfer to that new company free and clear of all the liens that are currently existing against those assets.

And the existing creditors of Chrysler would then be left in the bankruptcy court to litigate over how the proceeds from that asset sale would be distributed.

SIEGEL: Now, you appeared weekly before a Judge Gonzalez in the Enron bankruptcy case. What can you tell us about the way he runs a bankruptcy case and the way he runs a courtroom?

Mr. LODEN: Well, I'll tell you. When I looked at the docket yesterday and saw that Judge Gonzalez had drawn this case, I chuckled to myself and said, you know, Chrysler couldn't have chosen a better judge. Because he is absolutely one of the best judges that I've ever appeared in front of when it comes to recognizing the issues, understanding the various considerations that go into a case of this size, and developing procedures to get to a resolution as quickly as possible.

You know, in Enron, within the first three to four weeks of that case, we completed and Judge Gonzalez approved, a sale of substantially all of Enron's natural gas trading desk. Those were assets at the time that were valued at over $3 billion.

SIEGEL: Mm-hmm.

Mr. LODEN: Billion with a B. and I have every expectation that the process could occur as quickly and smoothly in the Chrysler case, as it occurred in Enron.

SIEGEL: Are the bondholders, the ones who refused to go along with the deal -thought it wasn't a good enough price that the government was brokering to avoid bankruptcy - will they get a chance in court to say, we still want to do better than 30 cents on the dollar for what Chrysler owes us?

Mr. LODEN: Absolutely. Once Chrysler files its motion to sell the assets, which according to Chrysler's lead lawyer today, could be as early as tomorrow. Once that motion is filed, we'll all have a better idea what Chrysler is proposing to do and what price Chrysler is saying that it will receive for the assets. At that point, everyone - the U.S. taxpayer, all creditors including the hedge funds - will have a much better idea of the structure of the deal that Chrysler is proposing. And if the hedge funds object, then they'll get their day in court and Judge Gonzalez will rule on the objection.

SIEGEL: Well, Steven Loden, thank you very much for talking with us about it.

Mr. LODEN: You're very welcome. Good to be with you.

SIEGEL: Mr. Loden is a partner at the law firm of Diamond McCarthy, which is based in New York and Houston. Transcript provided by NPR, Copyright NPR.

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