Court halts Chrysler assets sale

Chrysler’s five weeks of breakneck-speed bankruptcy proceedings came to a screeching – but possibly temporary – halt when a Supreme Court judge delayed the sale of assets to Italian carmaker Fiat.

The move could derail the US government’s ambitious plan for Chrysler to get back to profitability without the burden of many of its debts.

Justice Ruth Bader Ginsburg issued a stay last night, just a week before Chrysler says the government-backed sale must go through.

After June 15, Fiat could walk away from the deal and leave the struggling US firm with little option but to liquidate.

It was unclear today just how long the stay would last, or if the high court planned to take up the case.

Chrysler said it had no comment until it received further information from the court.

Justice Ginsburg said in her one-sentence order that the sale was “stayed pending further order”, indicating that the delay may only be temporary. She could decide on her own whether to end the delay, or she could ask the full court to decide.

An appeal court in New York approved the sale on Friday, but gave opponents until 4pm yesterday to try to get the high court to intervene. Justice Ginsburg issued her order minutes before the deadline.

Despite the aggressive objections of a trio of Indiana state pension and construction funds that own a small part of Chrysler’s secured debt, the carmaker has moved swiftly through the bankruptcy reorganisation process.

The Auburn Hills, Michigan-based company received bankruptcy court approval for the sale just a month after filing for bankruptcy protection and had been expected to emerge from court oversight when the sale closed.

Chrysler’s ability to speed through the process has partially been a result of the involvement of the Obama administration’s auto taskforce, which provided £2.8bn (€3.25bn) in bankruptcy financing and helped negotiate a deal between the company’s stakeholders.

Under a deal brokered in the days leading up to Chrysler’s April 30 filing, Fiat will receive up to a 35% stake in the new company created by the sale, in exchange for sharing the technology Chrysler needs to create smaller, more fuel-efficient vehicles.

The United Auto Workers union will get a 55% stake that will be used to pay for its pensioner health care obligations, while the US and Canadian governments will receive a combined 10% stake.

Meanwhile, Chrysler’s secured debtholders would get £1.25bn (€1.5bn) in cash, or about 29c on the dollar, for their combined £4.3bn (€5bn) in debt.

Some of the debtholders balked at the deal, saying that as secured lenders they deserved more.

A group of investment firms that held about 4% of Chrysler’s secured debt filed an objection to the sale shortly after the carmaker’s bankruptcy filing, but the group later dissolved, saying it did not have enough members to mount an effective challenge.

Later, the Indiana funds, represented by the same law firm as the dissident debtholders, filed their own objection and eventually appealed to the 2nd US Circuit Court of Appeals and the Supreme Court. They claim the sale unfairly favours Chrysler’s unsecured stakeholders such as the union ahead of secured debtholders like themselves.

The funds are also challenging the constitutionality of the Treasury Department’s use of money from the Troubled Asset Relief Programme to supply Chrysler’s bankruptcy protection financing. They say the government did so without congressional authority.

The funds hold about £26.5m (€30.7m), or less than 1%, of Chrysler’s £4.3bn (€5bn) in secured debt. They bought it in July 2008 for 43c on the dollar.

Consumer groups and individuals with product-related lawsuits are also contesting a condition of the Chrysler sale that would release the company from product liability claims related to vehicles it sold before the asset sale to Fiat.

Compensation for such claims would have to be sought from the parts of the company not being sold to Fiat. But those assets have limited value and it is doubtful that there will be anything available to pay out.

Chrysler also is working to shed 789 dealers, or about 25%, as part of its cost-cutting actions. But the move, which still needs bankruptcy court approval, is being challenged by a group representing more than 300 dealers, as well as individual dealers.