Chrysler ’s Chapter 11 bankruptcy case has been quick and surgical – as promised — up until this point, but will face its first real challenge as the automaker’s sale to Fiat enters a federal appeals court later today. A judge cleared the sale of Chrysler to Fiat earlier this week, but that decision could be overturned.
The appeal, filed by a group of Indiana pension funds, claims Chrysler’s reorganization plan favors junior lenders over senior lenders and is therefore illegal. Under the current Chrysler plan, senior lenders will only be entitled to 29 cents on the dollar, according to Automotive News.
The Indiana pension funds hold $42 million of Chrysler ’s $6.9 billion debt.
The appeal also contends the U.S. Treasury Department didn’t have the authority to carve out auto bailout loans from the Troubled Assets Relief Program.
“Chrysler, however, can be saved without trampling the law and the rights of the first lien lenders,” White & Case lawyers representing the Indiana pensioners said in a statement. “In any case, the issues on appeal call on the Court to maintain the rule of law, even set against cries from others that the economy as a whole will benefit from the sale.”
OppenheimerFunds Inc., a once dissident Chrysler bondholder that withdrew its objections after it drew public fire, is also speaking out against the Chrysler sale. OppenheimerFunds says the sale “undermines well-established principles of United States bankruptcy law and threatens to destabilize American credit markets by subverting the equitable principles of creditors’ rights.” OppenheimerFunds holds $96 million of Chrysler’s secured debt.
Chrysler and the bankruptcy court claim the automaker is worth more alive than dead – that is in Chapter 7 liquidation – but it remains possible the appeal could block the sale to Fiat. Such a ruling would likely push Chrysler to the brink, unless a resolution could be quickly reached.
While it remains unclear how the appeals court will rule, one thing is for sure – General Motors will be closely watching the proceedings.
