Chrysler is now an Italian Co.
#1
06-10-2009, 09:39 AM
Chrysler is now an Italian Co.
Fiat's historic purchase of Chrysler LLC was all but complete Tuesday, as the Supreme Court lifted a temporary halt to the deal and a New York bankruptcy judge approved Chrysler's plan to shed 789 dealers.
Sergio Marchionne of Fiat was named Chrysler CEO this morning.
The Supreme Court rejected arguments from three Indiana pension funds that contended the deal shortchanged secured investors and misused money from the $700-billion financial bailout.
Now, Chrysler and its 38,000 U.S. employees can get back to designing future vehicles, restarting factories and helping battered suppliers ship parts again. Fiat Chief Executive Officer Sergio Marchionne also can put a new management team in place. All these actions could jump-start Chrysler's sales and future, ending a painful period during which Chrysler was losing $100 million a day, according to a brief filed by the U.S. solicitor general.
Indiana State Police Pension Trust v. Chrysler is an appeal, in June 2009, of the decision in the United States Bankruptcy Court for the Southern District of New York, brought by several pension funds against the Chrysler LLC and the United States Department of the Treasury, to block the planned sale of Chrysler LLC assets to a "New Chrysler" entity in the Chrysler bankruptcy. When the sale was ordered to proceed by the bankruptcy court, the order was appealed to the United States Court of Appeals for the Second Circuit, and from there to the United States Supreme Court, who decided not to stay the asset sale.
Earlier, on May 27, 2009, U.S. federal Judge Arthur Gonzalez denied the motion to block the sale. On June 5, a three judge panel of the 2nd Circuit Court in New York affirmed the decision of the Bankruptcy Judge, staying their decision until 4PM, June 8, 2009.[4][5] On June 7, the plaintiffs filed an appeal with the U.S. Supreme Court.[6] On June 8, 2009, Supreme Court Associate Justice Ruth Bader Ginsburg issued a stay of Bankruptcy on Judge Gonzales's order allowing the sale to proceed, pending further order by her, or the Supreme Court.[7][8] Fiat had the right to withdraw from participation in the "New Chrysler" if the deal did not close by June 15th. However, the head of Fiat said it "would never walk away" from the Chrysler deal, even if it did not close by June 15th.[9] If Fiat did abandon the deal, since there is no other known entity willing to participate in the purchase of Chrysler assets as a block, the liquidation of all Chrysler assets would ensue.[5][10] The administration of U.S. President Barack Obama supported the completion of the asset sale in briefs filed at the Supreme Court.[11]
Contents
Background
Main articles: Chrysler bankruptcy and Automotive industry crisis of 2008-2009
Chrysler LLC and General Motors both carried a substantial debt and interest burden that would make restructuring for future viability difficult, unless bondholders agreed to have their claims swapped. The original U.S. government plan was for both companies to enter a Chapter 11 bankruptcy, having received critical agreements from most stakeholders, minimizing objections so that the companies could exit the process without a prolonged battle with most of the groups affected by the filing.[10] Fiat's agreement permits it to not consummate the proposed partnership with New Chrysler if it is not completed by June 15, 2009, which in turn could force the liquidation of all Chrysler assets.[10]
Holders of 70 percent of Chrysler bonds agreed to the proposed deal of 33 cents on the dollar; these were the four major U.S. financial institutions such as JP Morgan Chase and Bank of America which had received Troubled Asset Relief Program bailout funds from the U.S. government.[12] The remaining holders of the debt formed a group known as the Committee of Chrysler Non-Tarp Lenders and they accused the TARP bondholders of having a conflict-of-interest.[13][12]
Under government pressure, key members of the Non-Tarp Lenders conceded their fight, raising the total of bondholders agreeing to 92 percent.[12] But, with not all stakeholders agreeing before the deadline, Chrysler filed for bankruptcy on April 30, 2009. In bankruptcy court, the US government lowered the debt exchange offer to 29 cents on the dollar.[5][4]
The Indiana funds, plaintiffs in the lawsuit, obtained Chrysler bonds in July 2008 at 43 cents per dollar of face value.[5][4]
Case overview
The plaintiffs claim that the Department of the Treasury treated Chrysler's secured creditors in a manner that is contrary to that called for under U.S. bankruptcy law. Indiana State Treasurer Richard Mourdock originally[when?] filed a motion in the New York's federal bankruptcy court to stop the pending sale of Chrysler; it was rejected along with 300 other motions when the court order for the sale was issued.[5]
On Friday May 29, 2009, the Indiana group's motion was rejected and on Sunday, May 31, 2009, bankruptcy Judge Arthur J. Gonzalez approved a proposed government restructuring plan and sale of Chrysler's assets. The sale allows of most of the assets of Chrysler to be purchased by new entity.[5] The sale decision was appealed to the New York 2nd Circuit Court, which affirmed the sale, on June 5, 2009, and dissident Indiana pension plan bondholders appealed again, to the U.S. Supreme Court to block the sale. The U.S. 2nd circuit appeals court stayed its decision, pending a response from Supreme Court, until by 4 P.M. Monday June 8, 2009.[5][4] On June 8, 2009, Supreme Court Associate Justice Ruth Bader Ginsburg, who is assigned to emergency motions arising from the United States Appeals Court for the Second Circuit, in a one-sentence order, stayed the orders of the Bankruptcy Judge Gonzalez allowing the sale, pending further order by Justice Ginsburg or the Supreme Court.[8]
On June 7, 2009, the Indiana State Police Pension Fund, the Indiana Teacher's Retirement Fund, and the state's Major Moves Construction Fund filed a petition with the U.S. Supreme Court requesting an emergency stay to delay the sale of Chrysler to a group led by Italian carmaker Fiat while they challenge the deal. The funds argued that the sale went against U.S. bankruptcy law because it unlawfully rewarded unsecured creditors ahead of secured creditors. Under the proposed sale, Fiat will not initially contribute cash, but will contribute its vehicle platforms to the New Chrysler in exchange for its equity share.[14][15][16] Chrysler says the market value of the contribution could be as much as US$ 8 to 10 billion.[16][15] Fiat is proposed to receive 20% of the new Chrysler entity, and will have the future option of purchasing equity of up to an additional 15% of the company.[17][5][4] The autoworker's union retirement health care trust (voluntary benefit association "VEBA") would get 55%, and the U.S. Government and Canadian government would be minority stakeholders.[5][4]
The pension funds also challenged the constitutionality of using funds from the Troubled Asset Relief Program to pay for the Chrysler bailout, and claimed that Congress never gave approval for the funds to be used in that manner.[18]
[edit] Decision and completion of asset sale
On June 9, 2009, the Supreme Court published its denial of the applications for a stay of the sale from the three Indiana funds, allowing the sale of assets to "New Chrysler" to proceed.[2][3] According to the two page decision and order, the Indiana funds “have not carried the burden” of demonstrating that the Supreme Court needed to intervene.[2] The U.S. Department of the Treasury issued a statement saying: “We are gratified that not a single court that reviewed this matter, including the U.S. Supreme Court, found any fault whatsoever with the handling of this matter by either Chrysler or the U.S. government.”[2] The proposed sale of assets is scheduled to close on Wednesday, June 10, 2009, when the money to finance the deal is wired by the government. Fiat will receive equity in the the New Chrysler through its contribution of automobile platforms as a base for a new line of Chrysler cars.[2]
Opinions on the case
Plaintiff (Indiana pension group) argument
During a May 29, 2009 interview with Human Events, Mourdock said, "This is the first time in the history of American bankruptcy law when secured creditors received less than unsecured creditors." Mourdock also stated, "The Chrysler deal is a clear violation of the Fifth Amendment to the Constitution and more than 150 years of bankruptcy law." Mourdock also stated that under the Fifth Amendment, private property cannot "be taken without due process of law. That clearly has not happened in this case. There has been no process of law consistent with long-standing precedent whatsoever."[19]
On May 26, 2009, while speaking in front of U.S. District Judge Thomas Griesa, Mourdock stated, "As fiduciaries, we can't allow our retired police officers and teachers to be ripped off by the federal government. The Indiana state funds suffered losses when the Obama administration overturned more than 100 years of established law by redefining 'secured creditors' to mean something less... The court filing is aimed not only at recouping those losses but also reasserting the rule of law..." [20]
During a May 21, 2009 interview with Reuters, Mourdock stated, "They bought according to the rules, and then the rules got changed," and, "Our portfolios are no longer going to buy the secured debt of American corporations that are accepting bailout moneys. It is an unacceptable risk for us to purchase that debt."[21]
Defendant (U.S. government) argument
Chrysler said in a statement that Mr. Mourdock, a Republican, was politically motivated and was willing to put Chrysler in liquidation over less than 1 percent of the three funds’ assets. [22]
U.S. Solicitor General Elena Kagan defended the use of TARP funds for helping Chrysler, and argued that the pension funds' appeal to block the sale to Fiat lacked legal merit. She said that the losses that the pension funds would incur "cannot outweigh" the potential larger problems a collapse of Chrysler would create. She wrote, "As an economic matter... blocking the transaction would undoubtedly have grave consequences." [23] She also said, "The liquidation of Chrysler would have very severe effects on the American and Canadian economies... More than 38,000 Chrysler employees would lose their jobs; 23 manufacturing facilities and 20 parts depots will be shuttered; more than 3,000 Chrysler dealers would suffer significant and possibly fatal harm to their businesses; and billions of dollars in health and pension benefits for current and former Chrysler workers would be wiped out."[24]
U.S. Representative Joseph Donnelly (D-Indiana), objecting to the lawsuit, declared, "This claim endangers the present offer made by Chrysler and threatens to provide the pension funds with a much lower return than has already been offered." [20]
U.S. Representative Gary Peters (D-Michigan), with a district that includes Auburn Hills, Michigan, where Chrysler's headquarters is located, said, "It is quite clear that Indiana's case is not in the best interest of the people of Indiana. Indiana officials are fighting over $4.8 million at the risk of costing their state over $20 million in tax revenue, tens of millions more in related costs and putting 4,000 of their own people out of work."[25]
Shelly Lombard, a credit analyst and portfolio manager of high yield and distressed corporate securities at Gimme Credit, defended the Treasury Department's actions by saying, "Even though the debt was secured, it was clear the auto industry was very, very troubled at this time... If it wasn't, it wouldn't have been offered at such a steep discount." Lombard also pointed out that during the current recession, even secured bank debt is not a guarantee. She explained that the market's low price could have been due to a relative lack of buyers or because the debt was faulty. She also compared the transaction to purchasing a house at a bargain price, and stated, "Either there's a divorce and the people just want to get out of there, or the foundation is cracked. In an industry in such turmoil, due diligence becomes even more critical."[26]
Hedge fund managers from Pacific Investment Management, Barclays Capital, Fridson Investment, and Schultze Asset Management Advisors have predicted that the Treasury Department's actions will discourage them from lending money to unionized companies with underfunded pension and medical obligations, such as airlines and auto suppliers.[27] The Financial Times wrote that Obama's treatment of Chrysler's secured creditors "disturbed the security of expectation that has made lenders willing to provide capital as secured credit, thus handicapping all US industry and undermining what has been, for all its flaws, one of the best financial reorganisation processes in the world, now emulated elsewhere."[28]
An unsigned editorial in The Economist argued that the Treasury Department's actions could "establish a terrible precedent. Bankruptcy exists to sort legal claims on assets. If it becomes a tool of social policy, who will then lend to struggling firms in which the government has a political interest?"[29]
A Wall St. Journal editorial by James Taranto stated, "Congress established bankruptcy courts to provide for the orderly restructuring and liquidation of financially distressed companies, and the decisions of these tribunals are subject to review by the ordinary judicial courts. The Obama administration's plan for Chrysler -- which involved giving a politically favored constituency (the United Auto Workers) priority at the expense of both taxpayers and legally privileged secured creditors -- was an effort to cir***vent the rule of law."[30]
from wiki and public sources
Sergio Marchionne of Fiat was named Chrysler CEO this morning.
The Supreme Court rejected arguments from three Indiana pension funds that contended the deal shortchanged secured investors and misused money from the $700-billion financial bailout.
Now, Chrysler and its 38,000 U.S. employees can get back to designing future vehicles, restarting factories and helping battered suppliers ship parts again. Fiat Chief Executive Officer Sergio Marchionne also can put a new management team in place. All these actions could jump-start Chrysler's sales and future, ending a painful period during which Chrysler was losing $100 million a day, according to a brief filed by the U.S. solicitor general.
Indiana State Police Pension Trust v. Chrysler is an appeal, in June 2009, of the decision in the United States Bankruptcy Court for the Southern District of New York, brought by several pension funds against the Chrysler LLC and the United States Department of the Treasury, to block the planned sale of Chrysler LLC assets to a "New Chrysler" entity in the Chrysler bankruptcy. When the sale was ordered to proceed by the bankruptcy court, the order was appealed to the United States Court of Appeals for the Second Circuit, and from there to the United States Supreme Court, who decided not to stay the asset sale.
Earlier, on May 27, 2009, U.S. federal Judge Arthur Gonzalez denied the motion to block the sale. On June 5, a three judge panel of the 2nd Circuit Court in New York affirmed the decision of the Bankruptcy Judge, staying their decision until 4PM, June 8, 2009.[4][5] On June 7, the plaintiffs filed an appeal with the U.S. Supreme Court.[6] On June 8, 2009, Supreme Court Associate Justice Ruth Bader Ginsburg issued a stay of Bankruptcy on Judge Gonzales's order allowing the sale to proceed, pending further order by her, or the Supreme Court.[7][8] Fiat had the right to withdraw from participation in the "New Chrysler" if the deal did not close by June 15th. However, the head of Fiat said it "would never walk away" from the Chrysler deal, even if it did not close by June 15th.[9] If Fiat did abandon the deal, since there is no other known entity willing to participate in the purchase of Chrysler assets as a block, the liquidation of all Chrysler assets would ensue.[5][10] The administration of U.S. President Barack Obama supported the completion of the asset sale in briefs filed at the Supreme Court.[11]
Contents
Background
Main articles: Chrysler bankruptcy and Automotive industry crisis of 2008-2009
Chrysler LLC and General Motors both carried a substantial debt and interest burden that would make restructuring for future viability difficult, unless bondholders agreed to have their claims swapped. The original U.S. government plan was for both companies to enter a Chapter 11 bankruptcy, having received critical agreements from most stakeholders, minimizing objections so that the companies could exit the process without a prolonged battle with most of the groups affected by the filing.[10] Fiat's agreement permits it to not consummate the proposed partnership with New Chrysler if it is not completed by June 15, 2009, which in turn could force the liquidation of all Chrysler assets.[10]
Holders of 70 percent of Chrysler bonds agreed to the proposed deal of 33 cents on the dollar; these were the four major U.S. financial institutions such as JP Morgan Chase and Bank of America which had received Troubled Asset Relief Program bailout funds from the U.S. government.[12] The remaining holders of the debt formed a group known as the Committee of Chrysler Non-Tarp Lenders and they accused the TARP bondholders of having a conflict-of-interest.[13][12]
Under government pressure, key members of the Non-Tarp Lenders conceded their fight, raising the total of bondholders agreeing to 92 percent.[12] But, with not all stakeholders agreeing before the deadline, Chrysler filed for bankruptcy on April 30, 2009. In bankruptcy court, the US government lowered the debt exchange offer to 29 cents on the dollar.[5][4]
The Indiana funds, plaintiffs in the lawsuit, obtained Chrysler bonds in July 2008 at 43 cents per dollar of face value.[5][4]
Case overview
The plaintiffs claim that the Department of the Treasury treated Chrysler's secured creditors in a manner that is contrary to that called for under U.S. bankruptcy law. Indiana State Treasurer Richard Mourdock originally[when?] filed a motion in the New York's federal bankruptcy court to stop the pending sale of Chrysler; it was rejected along with 300 other motions when the court order for the sale was issued.[5]
On Friday May 29, 2009, the Indiana group's motion was rejected and on Sunday, May 31, 2009, bankruptcy Judge Arthur J. Gonzalez approved a proposed government restructuring plan and sale of Chrysler's assets. The sale allows of most of the assets of Chrysler to be purchased by new entity.[5] The sale decision was appealed to the New York 2nd Circuit Court, which affirmed the sale, on June 5, 2009, and dissident Indiana pension plan bondholders appealed again, to the U.S. Supreme Court to block the sale. The U.S. 2nd circuit appeals court stayed its decision, pending a response from Supreme Court, until by 4 P.M. Monday June 8, 2009.[5][4] On June 8, 2009, Supreme Court Associate Justice Ruth Bader Ginsburg, who is assigned to emergency motions arising from the United States Appeals Court for the Second Circuit, in a one-sentence order, stayed the orders of the Bankruptcy Judge Gonzalez allowing the sale, pending further order by Justice Ginsburg or the Supreme Court.[8]
On June 7, 2009, the Indiana State Police Pension Fund, the Indiana Teacher's Retirement Fund, and the state's Major Moves Construction Fund filed a petition with the U.S. Supreme Court requesting an emergency stay to delay the sale of Chrysler to a group led by Italian carmaker Fiat while they challenge the deal. The funds argued that the sale went against U.S. bankruptcy law because it unlawfully rewarded unsecured creditors ahead of secured creditors. Under the proposed sale, Fiat will not initially contribute cash, but will contribute its vehicle platforms to the New Chrysler in exchange for its equity share.[14][15][16] Chrysler says the market value of the contribution could be as much as US$ 8 to 10 billion.[16][15] Fiat is proposed to receive 20% of the new Chrysler entity, and will have the future option of purchasing equity of up to an additional 15% of the company.[17][5][4] The autoworker's union retirement health care trust (voluntary benefit association "VEBA") would get 55%, and the U.S. Government and Canadian government would be minority stakeholders.[5][4]
The pension funds also challenged the constitutionality of using funds from the Troubled Asset Relief Program to pay for the Chrysler bailout, and claimed that Congress never gave approval for the funds to be used in that manner.[18]
[edit] Decision and completion of asset sale
On June 9, 2009, the Supreme Court published its denial of the applications for a stay of the sale from the three Indiana funds, allowing the sale of assets to "New Chrysler" to proceed.[2][3] According to the two page decision and order, the Indiana funds “have not carried the burden” of demonstrating that the Supreme Court needed to intervene.[2] The U.S. Department of the Treasury issued a statement saying: “We are gratified that not a single court that reviewed this matter, including the U.S. Supreme Court, found any fault whatsoever with the handling of this matter by either Chrysler or the U.S. government.”[2] The proposed sale of assets is scheduled to close on Wednesday, June 10, 2009, when the money to finance the deal is wired by the government. Fiat will receive equity in the the New Chrysler through its contribution of automobile platforms as a base for a new line of Chrysler cars.[2]
Opinions on the case
Plaintiff (Indiana pension group) argument
During a May 29, 2009 interview with Human Events, Mourdock said, "This is the first time in the history of American bankruptcy law when secured creditors received less than unsecured creditors." Mourdock also stated, "The Chrysler deal is a clear violation of the Fifth Amendment to the Constitution and more than 150 years of bankruptcy law." Mourdock also stated that under the Fifth Amendment, private property cannot "be taken without due process of law. That clearly has not happened in this case. There has been no process of law consistent with long-standing precedent whatsoever."[19]
On May 26, 2009, while speaking in front of U.S. District Judge Thomas Griesa, Mourdock stated, "As fiduciaries, we can't allow our retired police officers and teachers to be ripped off by the federal government. The Indiana state funds suffered losses when the Obama administration overturned more than 100 years of established law by redefining 'secured creditors' to mean something less... The court filing is aimed not only at recouping those losses but also reasserting the rule of law..." [20]
During a May 21, 2009 interview with Reuters, Mourdock stated, "They bought according to the rules, and then the rules got changed," and, "Our portfolios are no longer going to buy the secured debt of American corporations that are accepting bailout moneys. It is an unacceptable risk for us to purchase that debt."[21]
Defendant (U.S. government) argument
Chrysler said in a statement that Mr. Mourdock, a Republican, was politically motivated and was willing to put Chrysler in liquidation over less than 1 percent of the three funds’ assets. [22]
U.S. Solicitor General Elena Kagan defended the use of TARP funds for helping Chrysler, and argued that the pension funds' appeal to block the sale to Fiat lacked legal merit. She said that the losses that the pension funds would incur "cannot outweigh" the potential larger problems a collapse of Chrysler would create. She wrote, "As an economic matter... blocking the transaction would undoubtedly have grave consequences." [23] She also said, "The liquidation of Chrysler would have very severe effects on the American and Canadian economies... More than 38,000 Chrysler employees would lose their jobs; 23 manufacturing facilities and 20 parts depots will be shuttered; more than 3,000 Chrysler dealers would suffer significant and possibly fatal harm to their businesses; and billions of dollars in health and pension benefits for current and former Chrysler workers would be wiped out."[24]
U.S. Representative Joseph Donnelly (D-Indiana), objecting to the lawsuit, declared, "This claim endangers the present offer made by Chrysler and threatens to provide the pension funds with a much lower return than has already been offered." [20]
U.S. Representative Gary Peters (D-Michigan), with a district that includes Auburn Hills, Michigan, where Chrysler's headquarters is located, said, "It is quite clear that Indiana's case is not in the best interest of the people of Indiana. Indiana officials are fighting over $4.8 million at the risk of costing their state over $20 million in tax revenue, tens of millions more in related costs and putting 4,000 of their own people out of work."[25]
Shelly Lombard, a credit analyst and portfolio manager of high yield and distressed corporate securities at Gimme Credit, defended the Treasury Department's actions by saying, "Even though the debt was secured, it was clear the auto industry was very, very troubled at this time... If it wasn't, it wouldn't have been offered at such a steep discount." Lombard also pointed out that during the current recession, even secured bank debt is not a guarantee. She explained that the market's low price could have been due to a relative lack of buyers or because the debt was faulty. She also compared the transaction to purchasing a house at a bargain price, and stated, "Either there's a divorce and the people just want to get out of there, or the foundation is cracked. In an industry in such turmoil, due diligence becomes even more critical."[26]
Hedge fund managers from Pacific Investment Management, Barclays Capital, Fridson Investment, and Schultze Asset Management Advisors have predicted that the Treasury Department's actions will discourage them from lending money to unionized companies with underfunded pension and medical obligations, such as airlines and auto suppliers.[27] The Financial Times wrote that Obama's treatment of Chrysler's secured creditors "disturbed the security of expectation that has made lenders willing to provide capital as secured credit, thus handicapping all US industry and undermining what has been, for all its flaws, one of the best financial reorganisation processes in the world, now emulated elsewhere."[28]
An unsigned editorial in The Economist argued that the Treasury Department's actions could "establish a terrible precedent. Bankruptcy exists to sort legal claims on assets. If it becomes a tool of social policy, who will then lend to struggling firms in which the government has a political interest?"[29]
A Wall St. Journal editorial by James Taranto stated, "Congress established bankruptcy courts to provide for the orderly restructuring and liquidation of financially distressed companies, and the decisions of these tribunals are subject to review by the ordinary judicial courts. The Obama administration's plan for Chrysler -- which involved giving a politically favored constituency (the United Auto Workers) priority at the expense of both taxpayers and legally privileged secured creditors -- was an effort to cir***vent the rule of law."[30]
from wiki and public sources
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