BREAKING: Supreme Court Okays Chrysler/Fiat Sale

June 9, 2009
Chrysler and Fiat logos

Chrysler and Fiat logos

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]

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