By SCOTT SMITH, Kokomo Tribune staff writer
scott.smith@kokomotribune.com
Kokomo Mayor Greg Goodnight would have preferred things had gone differently for Chrysler LLC Thursday, saying he expects more than 4,000 local Chrysler workers will be laid off while the company reorganizes.
"I think everyone in this city has been very patient, and I think we just need to hold out for another 30 to 60 days and get through this," Goodnight said.
The fact President Barack Obama didn't mention the word "liquidation" during his Thursday press conference was particularly encouraging, Goodnight said.
With agreements in place between Chrysler, Fiat SpA, the United Auto Workers union and most of Chrysler's 46 creditors, the optimistic view is the federal government can aid in an orderly, "surgical" reorganization process.
How many jobs will be lost through reorganization is one of numerous variables now subject to the bankruptcy process.
But Dennis Long, an Indiana University Law School professor specializing in bankruptcy, said the agreements made prior to Thursday's announcement point toward fewer surprises in the bankruptcy process.
"I think at this point, the union can't lose ... provided they stay friends with Chrysler," Long said. "What [the union] has gotten, they've gotten because Chrysler doesn't want a fight inside the bankruptcy that would come from rejecting legacy costs."
But Long also warned that in bankruptcy, Chrysler becomes a "debtor in possession."
That means, he said, that legal counsel may want to proceed in a different direction inside a bankruptcy than they would have if the company reorganized outside bankruptcy.
All contracts, including those with dealers, suppliers and unions, can be thrown out during the process, Long said.
While Chrysler, the union and Fiat go into the bankruptcy as partners, their main "enemies" in the process will be Chrysler dealership owners and the creditors, he said.
Aside from the legal wrangling sure to arise during the process, the more immediate issue for Kokomo workers will be looming layoffs.
Rich Boruff, president of UAW Local 685, called the approaching days off "scary."
"People won't be spending money. It's going to hurt a lot of people. Anyway you look at it, it's scary," he said.
But Kokomo residents may also be encouraged by the story of one local company that went through the sort of quick bankruptcy Chrysler workers are hoping for.
Haynes International managed to swap massive debts for equity in a structured bankruptcy reorganization in 2004, emerging as a profitable company.
The company emerged from Chapter 11 bankruptcy in August 2004, less than six months after filing for protection from more than 7,000 creditors. The company acquired huge debts when Haynes was spun off in a 1989 leveraged buyout from the Cabot Corp.
Former Haynes CEO Francis Petro used bankruptcy laws - and salesmanship - to get creditors to swap $140 million in debt for equity in the company.
Most of the Haynes bondholders realized the company's debt load prevented growth and investment, Petro recalled in a 2008 interview.
By negotiating concessions from local steelworkers, Petro was able to get a supermajority of creditors to buy into the plan. He then used bankruptcy laws to force the rest of the creditors to accept the reorganization.
"Our success has come without decimating everybody's wages and benefits," Petro said in the 2008 interview. "We didn't refuse to pay creditors. All we did was swap debt for equity."
And that's what Goodnight said he's hoping will happen with Chrysler.
"I'm sure [the president] never used the term 'liquidation.' I think he realized that 80 to 90 percent of the people involved had put together a plan, that if the other 10 percent had come on board, would have been viable," Goodnight said.
Long said that under U.S. bankruptcy law, a judge can force creditors to accept a bankruptcy settlement if two conditions are met.
He said the holders of more than two-thirds of the value of the debt - and more than one-half of all the claimants - must agree to the deal. If that happens, the bankruptcy judge can approve the reorganization.
In Chrysler's case, the U.S. and Canadian federal governments are poised to intervene with funds to aid the reorganization and satisfy the creditors, he added. On top of that, the federal government has agreed to guarantee warranties on the vehicles.
And in the end, bankruptcy could be best for Chrysler if it unburdens the company from an oversupply of dealers, he said.
"The biggest problem is probably public relations at this point," Long said. "There isn't anything bad that's going to happen inside bankruptcy that isn't already happening."