By Kimberlee Kruesi

WASHINGTON (MNI) - The Chrysler bankruptcy has set a dangerous precedent by encouraging large companies to stray from the traditional bankruptcy process, financial experts said Thursday.

During the Chrylser bankruptcy, the Obama administration restructured the process to result in a preferred outcome, argued David Skeel, bankruptcy law professor at the University of Pennsylvania Law School, during a panel discussion at the Cato Institute.

The panel did not agree that Chrysler will be the exception to how a traditional bankruptcy should take place and feared more companies will follow its example.

"Rather than use the traditional process, the administration has structured Chrysler's bankruptcy as a sham sale," Skeel wrote in a handout distributed prior to the discussion.

"In the administrations telling of the tale, it saved the industry," added Daniel Ikenson, associate director with the Cato Institute and fellow panelist. "But that is a merely romanticized ending to the first chapter which could be named Pandora opens the box."

"The real question is now how much damage will be caused by the monsters Pandora let out," Ikenson said.

While selling their assets to pay off debtors, Chrysler was able to provide some benefits for the favored unsecured creditors rather than secure senior creditors, the panel argued. Chrysler, they said, was able to sell their assets at a much lower price and the administration was able to complete the bankruptcy process much faster than normal.

In doing so, future companies facing bankruptcy are more likely to use the Chrysler approach, Skeel said.

As more government intervention occurs, the panel warned that less lending will take place between a company receiving government assistance and potential creditors.

"Senior lenders have been burned in Chrysler; they will take steps not to be burned again. Lenders will be especially reluctant to make loans to any company that might be the subject of government intervention, such as the suppliers to the auto industry," Sleek wrote.

Newspaper and auto suppliers were some of the companies mentioned that going forward might be in need of government assistance.

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