By Emily Chasan and David Bailey
NEW YORK/DETROIT (Reuters) - Chrysler asked the U.S. Bankruptcy Court on Monday for a swift hearing into its planned sale to Italy's FIAT (F.IT)SpA, eliciting immediate objections from some secured lenders.
Chrysler filed for bankruptcy on Thursday, planning an emergence from court protection in as little as 30 days under the guidance of Obama administration officials
The Chrysler bankruptcy, one of the biggest U.S. public company bankruptcies ever, is widely seen as almost a dry run for a potential General Motors Corp reorganization as GM faces its own restructuring deadlines on June 1.
Chrysler asked Judge Arthur Gonzalez to set a hearing as soon as May 21 to approve a $2 billion sale of most of its assets out of bankruptcy that would clear the way for a merger with Fiat, according to documents filed with the court.
Gonzalez adjourned a hearing into Chrysler's requested sale procedure until 2:30 p.m. EDT on Tuesday.
"We still have a very fragile coalition to get from here to there," Corinne Ball, Chrysler's bankruptcy lawyer, said near the start of a court hearing on Monday.
Fiat would start with a 20 percent stake in the new Chrysler, which would grow quickly to 35 percent.
Fiat Chief Executive Sergio Marchionne is expected to run the merged operations.
Chrysler also asked the Bankruptcy Court to approve a $35 million breakup fee for Fiat if the sale deal falls apart.
The automaker has shut down all of its plants for the reorganization and the longer Chrysler lingers in Bankruptcy Court, the greater the damage to the surviving operation.
"Absent a prompt sale, approved in the coming weeks, the value of the debtors' assets will rapidly decline and the ability to achieve a going concern sale will be lost," Chrysler said in court documents supporting the sale to Fiat.
Even without an extended shutdown, Chrysler expects delays of up to six months in the launch of a redesigned Jeep Grand Cherokee for the 2011 model year. It expects the availability of replacement parts to be restricted within weeks as well.
The U.S. automaker, which has been operating with $4 billion of emergency U.S. government loans, failed to reach a deal with all of its secured first-lien lenders last week to restructure its debt, forcing Chrysler into the courts.
DISSENTERS THREATENED - LAWYER
The decision by some lenders to hold out set off a political firestorm.
President Barack Obama called the holdouts "speculators" who hoped for a better deal from the U.S. taxpayer, and Michigan lawmakers threatened to pull state business from them.
A lawyer representing a group of the dissenters told the court on Monday that some who had been identified publicly had received death threats.
The first-lien lenders were owed a collective $6.9 billion, and four large banks led by JPMorgan Chase & Co that controlled about 70 percent of the debt had approved a plan to take $2 billion cash.
JPMorgan lawyer Peter Pantaleo, of Simpson Thacher & Bartlett LLP, told the court Chrysler had 90 percent of the debt agreed, more than the required support from secured lenders to support the sale.
A group of investment funds led by Oppenheimer Funds and Stairway Capital had objected to the payout terms as unfair and filed an immediate objection on Monday asking Gonzalez to block the Fiat deal and the government's offer to provide bankruptcy financing to Chrysler.
The $2 billion payout would amount to about 29 cents on the dollar, but a liquidation analysis prepared by an adviser to Chrysler suggested the payout could be as little as 9 cents on the dollar if the automaker were forced to liquidate.
The dissenting secured lenders said in their objection that the sale was being "orchestrated entirely by Treasury and foisted upon the debtors without regard to corporate formalities."
Tom Lauria, an attorney at White & Case who represents an ad-hoc group of the dissenting secured lenders, told the court that publicly identified group members had received death threats "which they perceive as being bona fide."
As a result, the group may seek to disclose its membership to the court under seal, Lauria said. Lenders who received death threats have notified police and the FBI, he said.
Chrysler has 30 plants in the United States, Canada and Mexico and the sale plan excludes several U.S. plants.
Those excluded plants include Sterling Heights Assembly in suburban Detroit where the automaker builds Chrysler Sebring sedans and convertibles and the Dodge Avenger.
Chrysler's St. Louis North and South assembly plants also are excluded from the sale. It builds Dodge Ram pickup trucks in St. Louis, but also assembles them elsewhere.
The automaker's Newark Assembly plant in Delaware and Conner Avenue Assembly plant in Detroit were also excluded, as were its Twinsburg, Ohio, stamping plant, an engine plant in Kenosha, Wisconsin, and the Detroit axle facility.
Chrysler expects Sterling Heights, Kenosha and Detroit Axle to run for a substantial period after the sale is completed.
The case is in re Chrysler LLC, U.S. Bankruptcy Court, Southern District of New York, No. 09-50002.
(Reporting by Kevin Krolicki, David Bailey, Emily Chasan, Chelsea Emery; editing by Dave Zimmerman and Matthew Lewis)
