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Chrysler heads to court for key bankruptcy hearing

(Agencies)
Updated: 2009-05-27 22:04

NEW YORK -- The future of Chrysler hangs in the balance as it heads to court Wednesday to ask a bankruptcy judge for permission to sell the bulk of its assets to a group headed by Italy's Fiat in hopes of saving itself from liquidation.

Full coverage:  Global Auto Industry Woes Related readings:  Chrysler May sales dip 30%  Chrysler targets 800 dealers in reorganization  Chrysler moves to eliminate 789 of 3,200 dealers  Chrysler to cut 800 dealers on Thursday  Chrysler's auction plan gets go-ahead

Attorneys for Chrysler LLC maintain that the deal with Fiat Group SpA is the company's only hope to avoid being sold off piece by piece, but the agreement remains controversial with more than 100 objections to the sale filed by the automaker's dealers, bondholders, former employees and others.

However, if the deal doesn't close by June 15, Fiat could back out.

Also Wednesday, fellow US-based automaker General Motors Corp. is set to announce the results of a debt swap offer that could decide whether it can restructure out of court or will follow its Auburn Hills, Mich.-based rival into Chapter 11 bankruptcy protection.

A sign sits on the windshield of a car at the Timberline Dodge dealership in Portland, Ore., May 26, 2009. [Agencies]

Detroit-based GM gave the holders of some US$27 billion of its bonds until midnight Tuesday to exchange their debt for a 10 percent stake in a new GM, and said it will announce the results Wednesday morning. If bondholders representing 90 percent of GM's unsecured debt -- about US$24 billion -- didn't agree to the exchange, GM has said it will file for bankruptcy protection. Bondholders have balked at the proposal from the start, saying it gives them too small a stake for the amount they are owed.

Automakers worldwide are struggling as the global recession has reduced demand for new vehicles. But GM and Chrysler have been particularly hobbled by promises to cover the health and pension costs of tens of thousands of unionized retirees -- along with recent record-high gasoline prices that reduced demand for their low-mileage trucks and SUVs.

On Tuesday, Chrysler avoided a possible roadblock to its sale when a US district judge ruled that a legal review of its bankruptcy proceedings wasn't needed before the sale hearing could take place.

Judge Thomas Griesa denied a withdrawal motion from attorneys representing a pair of Indiana state pension funds and a state construction fund. The funds had argued that a review was needed because of the unprecedented involvement of the Treasury Department in the case and its use of federal bailout funds for bankruptcy financing.

Chrysler released a statement late Tuesday saying that it was pleased with Griesa's decision and looked forward to Wednesday's hearing in bankruptcy court.

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