The New York Times is reporting today that yesterday three Indiana State Funds asked the Supreme Court to delay the sale of Chrysler to Fiat. According to the article:
“The three Indiana funds, which represent teachers and police officers, have sought greater compensation for their portion of Chrysler’s $6.9 billion in secured debt. They have also argued that the Obama administration illegally used federal bailout money earmarked for financial institutions to help Chrysler.”
The issue here is the secured debt. The government is trying to pressure those who hold secured bonds to accept less than the value of the bonds so that other creditors can be paid. We need to remember that one of the basic principles of bankruptcy law is that secured creditors (who loaned money only on the contractual promise that if the debt was unpaid they’d get specific property back) get paid off in full before unsecured creditors get anything. To do anything else is a violation of the US Constitution and its rules on private property rights.
The article further states:
“Last week, Judge Arthur J. Gonzalez of United States Bankruptcy Court for the Southern District in New York approved the sale to Fiat, overruling more than 300 objections. He later agreed to shorten a customary 10-day stay of the sale to four days, though the Court of Appeals stayed the transaction pending its hearing.
When Chrysler emerges from bankruptcy, a union retiree trust is to own 55 percent, Fiat a 20 percent share that could eventually grow to 35 percent and the United States and Canadian governments minority stakes.”
Anything the government wants to rush through quickly needs to be examined carefully. The sale of Chysler to Fiat needs to looked at very carefully to make sure all the applicable laws are followed.