Last Thursday the President announced a deal among Chrysler, Fiat, the UAW, the U.S. government, and several of Chrysler’s largest creditors. Some creditors oppose the deal, and Chrysler entered a bankruptcy process that will attempt to resolve this dispute.
The creditors left out of the deal are arguing that the Administration offered better deals to more junior creditors (such as UAW retirees) than to them. These objecting creditors think they can get a better deal from a bankruptcy judge than they were offered by the Administration.
This is not a traditional bankruptcy filing under Chapter 11. Instead, Chrysler, supported by the Administration, is using a section of the bankruptcy code (section 363) to try to sell portions of Chrysler to a new company (called “NewCo”) and dump some of the liabilities. If approved by the bankruptcy court, this would appear to give Chrysler the ability to “roll” the recalcitrant creditors and implement the deal negotiated with the other parties. The Administration appears to think this section 363 process gives them more leverage over the objecting creditors. The President has some smart and experienced people working on this, so I have no reason to doubt their judgment on this point.