Nov. 7 (Bloomberg) -- American Suzuki Motor Corp., 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.
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).
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