05 December 2008

Chrysler Hires Law Firm Jones Day as Bankruptcy Counsel

Chrysler LLC has hired the prominent law firm Jones Day as bankruptcy counsel, according to several people familiar with the matter. The firm was hired several weeks ago to help the ailing auto maker prepare for a possible Chapter 11 bankruptcy filing.

A Jones Day spokesperson declined to comment. A Chrysler spokeswoman couldn't be reached.

Chrysler's move suggests the auto maker is preparing for imminent financial failure should its efforts to persuade Congress to deliver federal rescue funds fall short. Chrysler, which is majority-owned by private-equity firm Cerberus Capital Management LP, says it needs a $7 billion capital infusion before year end.

Detroit's three auto makers have lobbied Congress for some $34 billion in immediate financing amid the deepest recession since the Great Depression. General Motors Corp. says it needs $4 billion by the end of the month. Ford Motor Co., which has a slightly better cash position after mortgaging nearly all its assets in 2006, is seeking a $9 billion line of credit it hopes it won't have to tap.

Jones Day co-head of restructuring Corinne Ball is handling the case, said the people familiar with the matter. She has worked on other automotive bankruptcies, such as that of auto-parts supplier Dana Corp., and many cases involving the United Auto Workers union. She represented GM in its acquisition of Korean auto maker Daewoo.

Reached by phone Friday afternoon, Ms. Ball declined to comment.

Chrysler has been seeking mergers or other alliances in an attempt to rationalize its cost structure. The company engaged in preliminary merger discussions with General Motors, but the talks were put on hold as the recession worsened and GM's cash position became dire. In testimony before a Senate panel Thursday, Chrysler Chief Executive Robert Nardelli said he would accept a forced merger with GM as a condition for a federal bailout.

Lawmakers skeptical of providing rescue funds have asked Mr. Nardelli why Cerberus won't inject more of its own cash into the auto maker.

Mark Zandi, chief economist at Moody's Economy.com, told senators Thursday the total payout could rise to $125 billion to keep Detroit's car companies out of bankruptcy for two years.

The auto makers have encountered skepticism on Capitol Hill after a big infusion from a recently passed financial-rescue package into banks and other financial firms has failed to unfreeze credit markets and has angered lawmakers' constituents. Auto makers have been forced to submit detailed restructuring plans and cut executive pay in an attempt to win aid.

Congressional Democrats have urged the White House to use money from the $700 billion Troubled Asset Relief Program, or TARP, but the administration has resisted, saying the funds are only intended for financial firms. Others have suggested using money from an Energy Department program intended to help auto makers retool to make more-fuel-efficient vehicles, but Democrats have largely balked at that idea.

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