A federal bankruptcy judge has approved the sale of most of Chrysler LLC’s assets to Italy’s Fiat, moving the American automaker a step closer to its goal of a quick exit from court protection. But it didn’t take long for a trio of Indiana state pension and construction funds to file an appeal, saying that the ruling sets aside the rights of the company’s secured lenders while doling out the company’s assets to others.
The appeal will go directly to the U.S. Court of Appeals, skipping U.S. District Court, Bankruptcy Judge Arthur Gonzalez said today. The request to skip district court was made by Chrysler and Fiat to speed the process.
“This case involves a matter of public importance, and an immediate appeal may materially advance the progress of this case,” Gonzalez said in a two-page order.
Gonzalez said in his ruling late Sunday night that a speedy sale – the centerpiece of a restructuring plan backed by President Barack Obama’s automotive task force – 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.
“Any material delay would result in substantial costs in several areas, including the amounts required to restart the operations, loss of skilled workers, loss of suppliers and dealers who could be forced to go out of business in the interim, and the erosion of consumer confidence,” Gonzalez wrote in his opinion. “In addition, delay may vitiate several vital agreements negotiated amongst the debtors and various constituents.”
With the approval of the sale, Chrysler could emerge from Chapter 11 bankruptcy protection as soon as this week, defying observers who said that the company could linger under court oversight for years.
But the Indiana funds, which own $42.5 million of Chrysler’s $6.9 billion in secured debt, aggressively objected to the sale with yesterday’s appeal, saying that the deal does not provide a big enough return for secured debt holders, while paying off unsecured stakeholders.
Indiana State Treasurer Richard Mourdock said yesterday that he was “disappointed but not surprised” by Gonzalez’s ruling. He said the state’s attorneys will appeal the case to U.S. District Court.
“The court is determined to rewrite 150 years of law defining ‘secured creditor,'” Mourdock said in a statement. “It saddens me to see government conducted in this manner.”
Gonzalez said the proposed sale must be approved in order to preserve the value of Auburn Hills, Mich.-based Chrysler’s business and what is ultimately left for its stakeholders.
“With this approval, the new Chrysler Group is created and can prepare to launch as a vibrant new company formed with Fiat,” Robert Nardelli, Chrysler’s outgoing chairman and CEO, said in a statement.
Nardelli is slated to leave Chrysler once the sale is final.
“While this has been an extremely difficult chapter in Chrysler’s history for all involved, the new company and its customers, employees and suppliers can now begin on a fresh page,” Nardelli said.
President Barack Obama released a statement yesterday saying that Gonzalez’s decision “paves the way for the new Chrysler to successfully emerge from bankruptcy as a new, stronger, more competitive company for the future.”
Obama noted the significant sacrifices made by all of the company’s stakeholders.
“We said this process would be completed quickly and efficiently, and that’s exactly what has been accomplished today,” he said.
Gonzalez’s ruling came after three marathon days of testimony last week, during which everyone from the automaker’s outgoing chief executive to dealers slated to lose their franchises took the stand.
Chrysler has maintained that selling the bulk of its assets to Fiat Group SpA is the only way it can avoid selling itself off piece by piece. In exchange for a stake in the new Chrysler, Fiat has agreed to share with it the technology it needs to create the smaller, more fuel-efficient vehicles now craved by U.S. drivers.
The Indiana pension funds bought their debt in July 2008 for 43 cents on the dollar. It’s unclear how much their appeal could delay the sale’s closing. Chrysler filed a motion yesterday asking that the sale be certified for immediate appeal in order to move the case quickly to U.S. District Court.
Chrysler has said that any delay could cause the deal with Fiat to crumble. The Italian automaker has the option of pulling out if the sale does not close by June 15.
As part of Chrysler’s restructuring plan, a UAW retiree health care trust will receive a 55-percent stake in the new company, while Fiat will get a 20-percent stake that can increase to 35 percent. The remaining 10 percent of the company will be owned by the U.S. and Canadian governments.
In the days leading up to Chrysler’s Chapter 11 filing, the automaker struck a deal with the majority of secured lenders to give them $2 billion in cash, or 29 cents on the dollar, to erase the $6.9 billion in debt. But some of the debtholders balked and the automaker was forced to file for bankruptcy protection on April 30.
Attorneys for the funds also questioned the constitutionality of the Treasury’s use of Troubled Asset Relief Program, or TARP, funds to supply Chrysler’s bankruptcy protection financing.
In a separate ruling yesterday, Gonzalez said that the funds do not have standing for that challenge because they will receive their fair share of the $2 billion set aside for secured debtholders, which is more than they would have received if Chrysler had liquidated.
In his statement, Mourdock cited the government’s use of TARP funds as another reason for the appeal. He called the move “illegal,” saying that the funds were only intended for financial institutions.
Besides the Indiana funds, a group of over 300 Chrysler dealers slated to lose their franchises under the company’s restructuring also objected to the sale. A separate hearing to address Chrysler’s motion to terminate 789 franchises is scheduled for tomorrow.
Objections were also filed by the automaker’s suppliers, former employees and people with product-related claims against the company.