American Suzuki Wins Approval of Loan for Dealer Shutdown

American Suzuki Motor Corp. (7269), the
bankrupt U.S. distributor of Suzuki cars and motorcycles, won
interim court approval to borrow as much as $45 million as it
shuts auto dealerships and revamps motorcycle and boat sales.

The company’s parent, Suzuki Motor Corp., will loan the
distributor money at a below-market interest rate of 3 percent
above Libor, Debra Grassgreen, an American Suzuki lawyer, said
today in federal court in Santa Ana, California. The loan has
fewer restrictions than most bankruptcy credit agreements, known
as debtor-in-possession loans, Grassgreen said.

The generous terms were designed “to have the case go
smoothly,” Grassgreen said.

Suzuki Motor Corp. will try to avoid long court battles
with its 216 dealers by offering cash payments within 10 days if
they voluntarily scrap their franchise agreements. Various state
laws normally protect dealers when auto manufacturers try to
force them to shut down, Richard Pachulski, another American
Suzuki lawyer, said in court.

On Nov. 5, Suzuki put the distributor into bankruptcy to
end losses in the U.S. market, avoid the costs of tightening
federal regulations and to shut down a sales network in which
69 percent of dealers sell fewer than five cars a month,
according to company attorney James Stang.

The company will reorganize its motorcycle, boat and all-
terrain vehicle business and continue selling through separate
dealers, American Suzuki said in court papers.

Interim Authority

U.S. Bankruptcy Judge Scott C. Clarkson gave the company
interim authority to borrow the money. American Suzuki will
return to court in the coming weeks to seek final approval to
borrow as much as $100 million.

Clarkson declined to sign any order related to the
company’s effort to persuade its auto dealers to cancel their
franchises. The company doesn’t need court permission to sign
such deals if it can get the dealers to go along, Clarkson said
in court.

Should dealers agree to end their contracts by Nov. 30,
Suzuki Motor would pay them half of what they’re owed by the
distributor within 10 days, according to court documents. The
dealers could later attempt to collect the rest of what they are
owed through the bankruptcy process.

The company may owe dealers about $50 million, Pachulski
said in court today.

Eric J. Snyder, an attorney for the dealers, said the
offers may not be in his clients’ best interest. There may be as
many as 4,000 Suzuki cars sitting unsold on lots around the
country that the dealers have the legal right under state laws
to send back to the manufacturer, he said.

The case is In re American Suzuki Motor Corp., 12-22808,
U.S. Bankruptcy Court, Central District of California (Santa
Ana).

To contact the reporter on this story:
Steven Church in Wilmington at
schurch3@bloomberg.net

To contact the editor responsible for this story:
John Pickering at
jpickering@bloomberg.net


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