US Supreme Court to rule on Chrysler-Fiat sale

The US government-backed sale of Chrysler's assets to Italian automaker Fiat has run into a last-minute hitch following an appeal filed in the US Supreme Court by three Indiana pension funds, which are objecting to the sale.

Pleading for an emergency stay of the sale of Chrysler's assets to Fiat, the three pension funds holding about $42 million, or less than 1 per cent of Chrysler's $6.9 billion debt, say that the Detroit-based automaker has broken many bankruptcy laws, which illegally benefits unsecured creditors, while secured lenders are left in the cold.

The US Second Court of Appeals on Friday gave the nod to US Bankruptcy Judge approving the sale, (See: Court approves Chrysler's sale to Fiat) which has led to the three pension funds filing an appeal, which,  if the US Supreme Court decides to hear, the Chrysler-Fiat deal would be stalled till the Supreme Court announces its final verdict.

The three pension funds objected to the way the restructuring benefits the UAW, which is an unsecured creditor, for the $10.6-billion Chrysler owes to its retiree healthcare fund. It claimed that Chrysler's proposed plan "inverts" the usual priority scheme, whereby senior secured creditors are paid in full first, followed by junior lenders, administrative claims, unsecured lenders and equity holders.

The new owners of Chrysler, which had filed for bankruptcy protection under chapter 11 on 30 April, (See: Chrysler may seek bankruptcy protection as lenders refuse to write off debt) would have been the United Auto Workers union trust with 55 per cent stock, Fiat initially with 20 per cent, the US government would hold 8 per cent and 2 per cent by the federal and provincial governments of Canada and Ontario.

The transaction with Fiat would help create the world's sixth-largest carmaker, a merger Chrysler was not able to achieve outside bankruptcy because of opposition by some of its secured lenders.