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Chrysler Lenders Ask Court to Block Sale to Fiat (Update3)
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By Tiffany Kary and David Glovin
June 5 (Bloomberg) -- Chrysler LLC’s planned sale of its best assets to a group led by Italy’s Fiat SpA shouldn’t go forward because it violates federal law, lawyers for creditors opposing the transaction told an appeals court panel.
Indiana pension funds and other creditors are appealing a ruling by the judge in charge of Chrysler’s bankruptcy case, who approved the sale. He found Chrysler had satisfied conditions to use a quick-sale provision of the bankruptcy code rather than have to go through the usual, lengthy process of asset sales, including hearings, evidence presentation and valuation trials.
Chrysler wants to transfer its Jeep, Chrysler and Dodge brands to a new company stripped of most debt so it can be competitive in world markets. The sale would be financed by the U.S. and Canadian governments, which would take equity stakes in the new Chrysler along with Fiat and a worker health-care fund.
“The alternative to the approval of the sale is liquidation,” U.S. Circuit Judge Amalya Kearse said during the hearing.
The hearing before Kearse, Dennis Jacobs and Robert Sack, ended at about 3:45 p.m. New York time. A decision could come this afternoon.
Thomas Lauria, a lawyer representing the Indiana pension funds, who rank as secured creditors, said the decision to approve the sale by bankruptcy judge Arthur Gonzalez puts the concept of secured debt “at great peril.”
No Other Bidders
Jacobs, the chief judge on the panel, asked Lauria what the bankruptcy court should have done.
“The motion should have been denied,” Lauria said.
“There were no other bidders” Kearse told him. “It seems the bankruptcy court had no alternative.”
Lawyers representing consumer and asbestos victims of Chrysler also argued against the terms of the sale in a courtroom filled with hundreds of spectators. In rebuttal, Chrysler’s attorneys and representatives of the U.S. Treasury seek to persuade the panel of judges that the sale conforms to U.S. bankruptcy and other laws.
Chrysler, based in Auburn Hills, Michigan, was set to complete the sale today at noon before the appeals court froze that plan so it could hear the case.
GM Plans
Bondholders of Detroit-based General Motors Corp. are objecting to its plan for a similar spinoff, which company officials want to complete within 60 days. A ruling against Chrysler might block GM’s plan and force liquidations.
The Indiana funds, holding $42.5 million of $6.9 billion in Chrysler secured loans, failed to convince Gonzalez that the carmaker’s spinoff plan is illegal on several grounds.
Companies can use the U.S. bankruptcy code’s Section 363 to seize a fleeting opportunity to sell assets without the usual procedures. Gonzalez said in a May 31 decision that this was such a case, citing the small window of time Fiat has insisted upon for the sale.
“Because of the difficulty of appealing 363 sales, my guess is the appeals won’t go through,” said David Skeel, a University of Pennsylvania law professor and author of “Debt’s Dominion: the History of Bankruptcy Law in America.”
In bankruptcy court, the funds had also argued that the use of $2 billion in loans from the Troubled Assets Relief Program to finance the deal was illegal because the law was only intended to help financial institutions, not manufacturers.
Extraordinary Powers
Judge Jacobs said that under the TARP statute, no one can interfere with the Treasury’s “truly extraordinary” powers unless there is a constitutional violation. A lawyer for the Indiana funds, Glenn Kurtz, said there had been such a violation.
Judge Sack asked Kurtz whether the U.S. Supreme Court should decide the case. Kurtz said that if the funds lose this appeal, they will seek a stay to take the case to the high court.
Chrysler and General Motors have taken about $25 billion in bailout loans and want about $40 billion more to complete their reorganizations.
The funds had also argued unsuccessfully that the asset deal, given its distribution of equity stakes to various parties, was a stealth reorganization plan, which is not allowed by Section 363. The deal proposes that the U.S. Treasury own 9.9 percent of the new Chrysler, the Canadian government 2.5 percent, a workers health-care trust almost 68 percent and Fiat 20 percent. Later Fiat has an option to increase its stake to 51 percent.
The funds are holdouts in a creditor group that threw more than 90 percent support behind Chrysler’s plan to become a more competitive carmaker.
Chrysler’s secured lenders, including the Indiana funds, will get $2 billion from the U.S. government if the transaction goes through and as little as $800 million in a liquidation, Gonzalez said in his 47-page ruling.
The case is In re Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan). |
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发表于 2009-6-5 03:19 PM
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