A group representing Indiana pension funds has argued that Chrysler’s sale to Fiat is unconstitutional as it puts the rights of junior creditors ahead of the rights of senior lenders
The Indiana pension funds- the Indiana State Teachers' Retirement Fund, the Indiana State Pension Trust and the Indiana Major Moves Construction Fund- filed a stay application with the Supreme Court Justice Ruth Bader Ginsburg.
The stay application
The group argued in the stay application, “Absent a stay, the Court will be deprived of the opportunity to decide critical, nationally significant legal issues relating to management of the economy by the United States Government. Chrysler's bankruptcy carries profound implications for the nation's economy. Nearly everyone will feel the impact."
Earlier, Indiana Treasurer Richard Mourdock had appealed for the bankruptcy court’s ruling giving a go ahead to Chrysler selling its prime assets to Fiat and forming a new company, ‘Chrysler Group’, to be jointly owned by Fiat, the U.S. government, an autoworker's union retiree fund and the federal and provincial governments of Canada and Ontario.
However, the appeals court, on Friday, had upheld Chrysler plan to exit bankruptcy. Chrysler commended the court's verdict to support the sale, saying it "appreciates its recognition of the need for a swift conclusion to this process so we can quickly begin building the new company."
The Indiana funds own about $42 million of the senior debt. That represents less than 1 percent of Chrysler's $6.9 billion debt.
Chrysler and Obama administration precariously placed
The cornerstone of the bankruptcy exit and the key to Chrysler's restructuring is the coalition with Fiat. The Italian car maker has assured to share its small cars and fuel-efficient engine technical know-how with Chrysler in lieu of a 20 percent stake in Michigan based automaker.
However, Fiat can walk out of the deal if it is not completed by June 15. That will leave Chrysler with no other option but liquidation.
The setback would tarnish President Barack Obama’s image and undermine his efforts to bail the auto industry out. The adverse repercussion could snowball as any glitch in Chrysler could replicate in the General Motor Corp’s (NASDAQ: GM) bankruptcy process.
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