U.S. Hires Advisors for Auto Restructuring

NEW YORK/DETROIT (Reuters) – The U.S. government has retained two law firms with extensive bankruptcy experience and the investment bank Rothschild to advise officials on the taxpayer-backed restructuring of General Motors Corp (GM.N) and Chrysler LLC, a person with direct knowledge of the work said.

New York law firm Cadwalader, Wickersham & Taft LLP was hired by the U.S. Treasury last month and will consider a range of possibilities for the struggling automakers including the prospect of a bankruptcy funded by the U.S. government, the person said.

Cadwalader is joined by Chicago-based law firm Sonnenschein, Nath & Rosenthal and Rothschild in working with U.S. officials as they prepare to review turnaround plans being readied by the two struggling automakers, the person said.

Sonnenschein confirmed that the firm had been engaged to advise Treasury on “ongoing matters related to the 2008-2009 developments within the U.S. automobile industry.”

The Sonnenschein lawyers who are advising the government are from the firm’s capital markets practice based in New York, said Melissa Anderson, a spokeswoman for the firm.

A Chrysler spokeswoman said the automaker, which is controlled by private equity firm Cerberus Capital Management [CBS.UL], was focused on preparing a revised turnaround plan.

Both GM and Chrysler face a Feb. 17 deadline to submit updated restructuring plans to the U.S. government.

“We can only speak for ourselves: Chrysler is focused on developing its submission to the U.S. Treasury and the company looks forward to submitting it on Feb. 17,” Chrysler spokeswoman Shawn Morgan said in an email.

Representatives for Rothschild, GM and the U.S. Treasury could not be immediately reached for comment. Cadwalader had no comment.

GM and Chrysler executives have previously ruled out a bankruptcy filing, saying that it would quickly spin out of control into a liquidation because buyers would be scared away from purchasing new cars and trucks from a bankrupt automaker.

But some outside analysts have argued that without the threat of bankruptcy, the companies lack the leverage that they need to extract deep concessions from bondholders and the United Auto Workers union.

GM has been given $13.4 billion in emergency loans. Chrysler, which has a pending alliance with Italy’s Fiat SpA (FIA.MI), has been given $4 billion and is seeking another $3 billion.

AUTO MARKET COLLAPSE

U.S. auto sales dropped 37 percent in January to a 27-year low. The market is entering its fourth year of declining sales after plunging 18 percent in 2008.

The appointment of the advisers to the U.S. Treasury appeared to revive the possibility that the government could consider a federally funded debtor-in-possession financing for Chrysler or GM in a bankruptcy process.

Some outside experts had urged the previous administration of President George W. Bush to pursue that option, which was strongly opposed by the automakers, their suppliers, auto dealers and the UAW.

Cadwalader has been an adviser to Lyondell Chemical Co, which obtained an $8 billion DIP loan when the company filed for bankruptcy last month.

Deryck Palmer is leading the team advising the Treasury at Cadwalader on the auto restructuring.

Sonnenschein partners working with Treasury include Aimee Cummo, Robert McCarthy, Jeffrey Murphy and Stephen Whelan.

Both GM and Chrysler have until the end of March to demonstrate that they can be made “viable” under the terms of a bailout approved in late December by the Bush administration.

President Barack Obama’s administration has not yet appointed a “car czar” or other officials who would oversee the restructuring of the cash-strapped auto industry.

Other requests for aid remain pending. Ford Motor Co (F.N) has asked for a $9 billion line of credit. Auto parts suppliers have asked for government aid that would be either channeled through the car companies or loans that would be provided to them directly.

(Reporting by Jui Chakravorty Das, David Bailey; Editing by Patrick Fitzgibbons, Gary Hill)