Question 1) is Chrysler a good candidate for a 363 sale?
Chrysler is the third largest auto company of the United States of America. It is facing the near bankruptcy/ insolvency. Therefore, it has turned to the United States Department of Treasury for financing the company in 2008 and after that the company had struggled for many months to patch the reorganization out-of-court. The bankruptcy threat leads to the reduction in the sales in domestic market from 12.1% to 10.6% and it is possible that if the company doesnâ€™t get over the threat of impending bankruptcy very soon, it will lead to the company further loss of confidence from customers, as well as suppliers. After the bankruptcy, the company had suspended its operations but still it was losing $100 million every day.
In the under section 363 of the United States Bankruptcy Code, it concludes the disposition of a debtorâ€™s assets outside the ordinary classes of business. Under the section 363, a bidder offers an amount to the company in bankruptcy after establishing valuation floor, and this process has many advantages for the buyer of the company and secured creditors.
The Chapter 11 Bankruptcy Code becomes more complicated if the debtors have international operations because there is not one particular model or law through which it for handling an international insolvency or reorganization. Every country has its law and regulation regarding territorial disputes over the distribution of foreign assets often arises.
Chrysler is the good candidate for a 363 sale, as this deal will maximize the value of their bankruptcy estate for the benefits of creditors. The assets sold under the section 363 sales transfer assets free and clear of any interest. Therefore, it might get the higher amount for their assets. This will result in it having more resources to distribute among the debtors credit.
It had received the offer from the buyer; the combination of the equity and cash restructure the first lien debt. It had also extended the final offer of $2 billion cash. The Non-TARP lenders including pension plans, school endowments, investment firms and hedge funds and representing about $ 1 billion in Chrysler secured debt.
It is a good candidate it makes the bid up to the full amount of the company total amount of secured debt in order to acquire the assets in exchange for the satisfaction of a debt in the amount of the bid. The company is in not in the profitable position. Therefore, it is necessary for the company to reorganize the structure of the company in order to fulfill the interest expense of the company. The total debt of it is $ 39.34 billion; therefore, it is necessary to resolve the issue of liability. It has to take a proposed action in = to decrease the liability of the company. The market share of the company is good, and its debt has also decreased from last year. Therefore, it would be the good candidate for a 363 sale. It is in the bankruptcy position. Therefore, it is necessary for the company to resolve the issue before it the further loss of confidence from customers and suppliers.
Question 2)who wins and losses if the 363 sale of Chrysler to fiat proceeds?
The deal between the Chrysler and Fiat was simpler and without the involvement of court, most of the parties were agreed upon the proposed sale. The agreement proposed that a new Chrysler company would be formed which would serve as the alliance entity of Chrysler, and it would pay to Chrysler $2 billion in cash, assuming certain of its liabilities. The deal also proposed that Fiat would transfer various technologies and distribute its larger market with New Chrysler. The total contribution of the deal is estimated to be 8 to 10 billion. The proposed settlement of New Chrysler would receive the 20% of its equity to Fiat.
Fiat will forgive all $1.5 billion of its second lien debt and it also agree to negotiate or settle its guaranty obligation to the Pension Benefit Guaranty Cooperation (PBGC) and Fiat will pay the obligation of the company by paying $600 million to Chrysler Pension Fund. The ownerâ€™s would transfer 55% of stock to VEBA form New Chrysler and satisfy most of its retire of health care of $10 billion and would also issue a payable over 13 year……………………
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