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for the Second Circuit late last night put Chrysler LLC’s bankruptcy sale to
Fiat Group on hold in order to hear an appeal by a trio of
The
arguments by the Indiana State Police Pension Fund, the Indiana Teacher’s
Retirement Fund and the Major Moves Construction Fund. Legal briefs in the
appeal are to be filed by tomorrow and oral arguments are scheduled to begin Friday
at 2 p.m.
Chrysler’s sale to Fiat had been approved by U.S. Judge Arthur Gonzalez on
Sunday and the sale was set to close Friday at noon. Gonzalez said in his
ruling that a speedy sale was needed to keep the value of Chrysler from
deteriorating and would provide a better return for the company’s stakeholders
than if it had chosen to liquidate.
But the
Chrysler’s $6.9 billion in secured debt, aggressively objected, saying the sale
does not provide a big enough return for secured debt holders, while paying off
unsecured stakeholders.
“We are pleased the Court of
Appeals has agreed to hear our arguments,” said Indiana Treasurer Richard
Mourdock in a prepared statement issued this morning. “As we have stated from
the beginning,
suffered losses because of unprecedented and illegal acts of the federal
government.”
- Secured creditors, such as the
funds, have been made secondary to unsecured creditors in contradiction to
longstanding bankruptcy law. The proposed sale gives majority ownership of the
company to the government's preferred unsecured creditors, while secured creditors
receive only 29 cents on the dollar, it said.
- The federal government
has illegally used Troubled Asset Relief Program funds to leverage the sale.
The state contends TARP funds were to be solely used to aid financial
institutions.
- The government's plan constitutes an illegal "sub rosa" plan and not an
arm's-length transaction because Chrysler's receipt of federal TARP funds has
compromised its independence. "Chrysler has become a puppet of the federal
government," the state said in a statement.
Chrysler has said that any
delay in the sale could cause the deal with Fiat to crumble, as the Italian
automaker has the option of pulling out if the sale does not close by June 15.
In addition today, Gonzalez
is expected to rule on whether Chrysler can terminate the franchise agreements
of 789 of its dealers as part of the ongoing restructuring. He is expected to
hear testimony from Chrysler LLC executives, as well as dealers during the
hearing.
Auburn Hills, Mich.-based
Chrysler maintains that it needs to reduce its dealer base to a leaner network
of about 2,400 dealers in order to emerge from Chapter 11 bankruptcy protection
as a stronger company.
Chrysler claims that many of
the dealerships in question, which amount to about a quarter of its dealer population,
were chosen because they are either unprofitable or located too close to other
Chrysler dealerships.
But the dealers argue that
they don't cost the automaker anything, just make it money by selling
Chrysler's cars and trucks.
They maintain that if
Gonzalez approves Chrysler's motion, it will result in the closing of hundreds
of dealerships, and thousands of workers will lose their jobs.
A group representing about
300 of the dealers slated to lose their franchises have filed an objection.
They also earlier objected to Chrysler's motion to sell the bulk of its assets
to a group led by
Fiat because it was tied to the plan to eliminate the dealerships.
In addition to the dealers
group, attorneys for several individual dealers have also filed objections.
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