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Dealers
Marty Padgett
The sale of Chrysler to Fiat has hit a speed bump, with a group of bondholders petitioning the U.S. Supreme Court to stop the transaction and restore what they say are their lawful rights under the American automaker's bankruptcy petition.
Bloomberg reports that a group of Indiana-based pension funds are suing to stop the close of the Chrysler sale, which could take place as early as tomorrow. The funds have petitioned Justice Ruth Bader Ginsburg to stop the transaction until the Court can decide if it will hear their appeal.
The bondholders argue that the deal to save Chrysler is a misuse of funds from the Troubled Asset Relief Program (TARP), set up by the White House to save banks from failure.
The deal struck between the Obama administration, Chrysler and Fiat, and the United Auto Workers (UAW), also violates the order of debt preference set by bankruptcy law. By the law, bondholders are secured creditors, and are first to get their debts restructured, ahead of unsecured creditors like the UAW. The restructuring plan set in motion by the union, the automakers and the Administration, gives the UAW a greater share in the new Chrysler than it would normally receive if the secured creditors were serviced first.
If the Supreme Court does intervene, it could stop the sale and could force Chrysler into liquidation. It could also influence the Chapter 11 filing of General Motors, which is widely seen as a more complex case than that of Chrysler.
Chrysler could emerge from Chapter 11 in days if the Supreme Court does not hear the last-minute appeal.
UPDATE: The Supreme Court has delayed the sale of Chrysler assets until the claims of Indiana pension funds can be heard. [New York Times]
UPDATE: Supreme Court rules that Chrysler sale can proceed, while not ruling on the legal challenge of the Indiana pension funds--a challenge that can be heard again if the funds offer proof that the Court needs to intervene. [New York Times]
Chrysler and Fiat logosEnlarge Photo The sale of Chrysler to Fiat has hit a speed bump, with a group of bondholders petitioning the U.S. Supreme Court to stop the transaction and restore what they say are their lawful rights under the American automaker's bankruptcy petition. Bloomberg reports that a group of Indiana-based pension funds are suing to stop the close of the Chrysler sale, which could take place as early as tomorrow. The funds have petitioned Justice Ruth Bader Ginsburg to stop the transaction until the Court can decide if it will hear their appeal. The bondholders argue that the deal to save Chrysler is a misuse of funds from the Troubled Asset Relief Program (TARP), set up by the White House to save banks from failure. The deal struck between the Obama administration, Chrysler and Fiat, and the United Auto Workers (UAW), also violates the order of debt preference set by bankruptcy law. By the law, bondholders are secured creditors, and are first to get their debts restructured, ahead of unsecured creditors like the UAW. The restructuring plan set in motion by the union, the automakers and the Administration, gives the UAW a greater share in the new Chrysler than it would normally receive if the secured creditors were serviced first. If the Supreme Court does intervene, it could stop the sale and could force Chrysler into liquidation. It could also influence the Chapter 11 filing of General Motors, which is widely seen as a more complex case than that of Chrysler. Chrysler could emerge from Chapter 11 in days if the Supreme Court does not hear the last-minute appeal. [Bloomberg] UPDATE: The Supreme Court has delayed the sale of Chrysler assets until the claims of Indiana pension funds can be heard. [New York Times] UPDATE: Supreme Court rules that Chrysler sale can proceed, while not ruling on the legal challenge of the Indiana pension funds--a challenge that can be heard again if the funds offer proof that the Court needs to intervene. [New York Times]
Responses (5 total)
By Carl F Thelin #1, Posted: 6/7/2009
Surprise - at 6:55 pm MDT I got an email from you, Marty, but the message says "posted 6:19 am PDT. Does it take all day for the message to slide through the tube?
By Eddie #2, Posted: 6/8/2009
The Supreme court will NOT take any action that will result in the out right liquidation of Chrysler. Maybe there is an opportunity here for some smart investors to step in with a different deal or an arrangement to save the day.
By Skeptic #3, Posted: 6/9/2009
If certain people want to investigate the whole TARP/government bailout effort, they should pull the cover off the whole thing.
But they should be careful what they wish for. If throwing money at GM and Chrysler is considered distasteful, some of the backroom dealings that infused the Wall Street firms, banking industry and AIG would cause vomiting.
By Jim #4, Posted: 6/10/2009
I dont understand why all the Headlines read "Sale" of Chrysler to Fiat as everything I have read says the US Government is "Giving" the percentage of the Company to Fiat. This is a terrible ruling and the Supreme Court should have protected the Bondholders!
By Andy Hoffman #6, Posted: 6/10/2009
This comes as terrible news to any of the 40 million people who currently own Chrysler or GM vehicles, as the "bankruptcy loophole" included in each companies' plans will essentially mean those car owners are driving ticking time bombs. http://tinyurl.com/lfxp7u Moreover, as a practical matter, why would anyone in their right mind purchase a vehicle from a company that has so brazenly decided to leave past customers in such an awful lurch?
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