Archive for May, 2009

Chrysler gets judge’s approval for asset sale (Reuters)

Sunday, May 31st, 2009 | Finance News

NEW YORK/DETROIT (Reuters) –
A U.S. bankruptcy judge on Sunday approved the sale of substantially all of U.S. automaker Chrysler's assets to a group led by Italy's Fiat SpA (FIA.MI) hours before an expected bankruptcy filing by General Motors Corp (GM.N).

Judge Arthur Gonzalez approved the $2 billion sale of the assets to a new company that will be 68 percent controlled by a healthcare trust aligned with the United Auto Workers union.

Fiat will control 20 percent, the U.S. and Canadian governments will control the other 12 percent.

In his written opinion Judge Gonzalez said the only alternative to approving the sale was the "immediate liquidation" of the company and that he was concerned about saving the value of Chrysler as a continuing operation.

"Indeed, because of the overriding concern of the U.S. and Canadian governments to protect the public interest, the terms of the Fiat Transaction present an opportunity that the marketplace alone could not offer, and that certainly exceeds the liquidation value," Gonzalez wrote in a 47-page opinion.

Chrysler filed for bankruptcy protection on April 30 to complete the sale and alliance with Fiat within 60 days in a case that analysts have seen as a test for the much bigger and more complex bankruptcy of GM.

REJECTED OBJECTIONS

Judge Gonzalez, who has also overseen the Enron and WorldCom bankruptcies in his nearly 14 years on the bench, rejected nearly every argument objectors to the deal offered up in a three-day hearing last week.

He also questioned some of the objectors' legal rights to make such arguments.

Objectors to the deal had included a group of Indiana pension funds holding secured debt, some of the 789 dealerships Chrysler plans to reject, and consumer groups.

They had argued that Chrysler was moving too quickly, that the sale violated bankruptcy principals and that the company was needlessly closing hundreds of its dealerships.

Lawyers for the company, however, said the quick sale was needed to preserve the value of Chrysler's operations and save more than 100,000 auto-related jobs.

Judge Gonzalez did not accept arguments by dealers that new Chrysler was unfairly rejecting their dealership franchises, saying that such decisions are allowed in every bankruptcy case, would give the new company the best shot at survival, and that government involvement should not make this case any different. He noted another hearing on dealer contracts is set for this Wednesday.

He also rejected several arguments brought by the Indiana pension funds against the deal.

Judge Gonzalez wrote that the deal does not violate the typical order of bankruptcy repayments, and it was not a "sub rosa" plan of reorganization masquerading as a sale, because "not one penny of value" of Chrysler's assets was going to anyone but its senior lenders, who are receiving $2 billion, or 29 cents on the dollar. Other parties like Fiat, the union and the government are receiving stock in the new company.

In a separate opinion, Judge Gonzalez found that the Indiana pension funds lacked standing to challenge the government's use of funds for automakers under the Troubled Asset Relief Program.

Gonzalez also agreed with arguments from JPMorgan Chase & Co, the agent on Chrysler's senior loans, that the dissenting lenders had already signed away their rights to object by agreeing in loan papers that the administrative agent can act collectively on behalf of all the lenders.

More than 90 percent of Chrysler's senior lenders supported the deal to sell the company to a new Chrysler, which will be known as Chrysler Group LLC.

Observers expect the deal to close almost immediately but were preparing for objectors to file an appeal in another court.

Chrysler's unwanted plants, and other assets and liabilities will remain in bankruptcy court for some time.

The case is In re: Chrysler LLC, U.S. Bankruptcy Court, Southern District of New York, No. 09-50002.

(Additional reporting by Caroline Humer and Kevin Krolicki; Editing by Ted Kerr and Mike Nesbit)

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Private equity firm KKR swings to $1.2 billion loss in 2008 (Reuters)

Sunday, May 31st, 2009 | Finance News

NEW YORK (Reuters) –
Private equity firm Kohlberg Kravis Roberts & Co (KKR.UL) posted a substantial loss in 2008 as the global economic downturn took its toll on the firm's investments.

KKR lost $1.19 billion before taxes last year, compared with pre-tax economic net income of about $815 million in 2007, according to a presentation by the private equity firm on Sunday.

"Economic net income" generally excludes the impact of income taxes, noncash charges related to vesting of equity-based compensation and amortization of intangible assets.

KKR said its averaged adjusted pretax economic net income from 2004-07 was $926 million.

The private equity industry has been struggling with numerous problems -- absence of leverage for new deals, troubled portfolio companies and investors hurt by equity market falls.

KKR, co-founded by "buyout king" Henry Kravis, has the added problem of having announced plans to take itself public just prior to the markets plunging.

KKR said total annual fee income fell 27 percent to $640 million in 2008. Total assets under management dipped to $48.5 billion from $53.2 billion.

The New York firm said it has $15.4 billion of uninvested capital across its three geographic funds: Europe, U.S. and Asia.

KKR released the information to provide investors with an update on its financial condition as it continues to consider buying out its Amsterdam-listed fund, KKR Private Equity Investors LP (KPE). (KKR.AS) The deal would be key to KKR's plans for a U.S. stock listing.

KKR's plans to become a publicly traded company hinge on the deal to buy the KPE fund. If that transaction is scrapped, the listing would be thrown into question.

KKR announced the complicated transaction in July 2008, saying it would buy KPE, delist it from Euronext and launch the combined new company on the New York Stock Exchange under the stock symbol "KKR." KKR had previously considered a more conventional initial public offering.

(Reporting by Michael Erman; Additional reporting by Michael Flaherty in Hong Kong; Editing by Anshuman Daga)

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Oil hits new seven-month highs on equities optimism (Reuters)

Sunday, May 31st, 2009 | Finance News

SINGAPORE (Reuters) –
Oil prices extended their rally to a fresh seven-month high on Monday as stock market optimism and hope for a global economic recovery supported the market's best monthly gains in a decade.

U.S. light sweet crude was 55 cents higher at $66.86 by 0142 GMT, after hitting a high of $66.95 a barrel.

Prices rallied 30 percent in May, hitting their highest since early last November and giving OPEC enough hope about the outlook that it agreed to leave oil output levels unchanged at a meeting last week.

(Reporting by Sambit Mohanty)

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