• Jun 9th 2009 at 7:40PM
  • 42
With the temporary stay issued yesterday lifted, the Supreme Court will allow the government-backed sale of Chrysler to Fiat. The high court rejected the request from Indiana pension funds and consumer advocates to delay the deal, clearing the way for the sale and setting a precedent for General Motors in its own bankruptcy proceedings.

[Source: Bloomberg | Image: Getty]

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    • 1 Second Ago
      • 6 Years Ago
      Here comes my MiTo !!!!
      • 6 Years Ago
      They were willing to risk millions and hoped to make out like bandits, they lost, now its time for them to accept responsibility for their mistakes and move on, Lesson Learned.

      If they had made out like bandits they wouldn't be crying right now would they.
      • 6 Years Ago
      Really, if this had gone on any longer, it would be worth way too much trouble than Indiana's worth. And so, another bump along the road ahead is passed on by.
      • 6 Years Ago
      Forward Ho!!!

      • 6 Years Ago
      Thank Buddha.
      • 6 Years Ago
      What if this creates a backlash against Fiat?
      • 6 Years Ago
      While I'm troubled over the Fiat deal and believe that a better deal overall would have come out of Chapter 7, the Indiana pension fund is hardly blameless.

      Buying Chrysler debt as late in the game as they did was a highly speculative, bottom feeding investment that mocks their fiduciary responsibility to Indiana's taxpayers.

      They will be very lucky to lose only a third of this idiotic "investment". Going to the roulette table at Caesar's and putting $20 million on black would have made more sense.
        • 6 Years Ago

        They didn't invest in Chrysler stock. Not even in unsecured bonds. They invested in SECURED BONDS.

        That is the LEAST gamble possible, or it was supposed to be before now.

        Regardless of the motive of buying them, secured bonds are supposed to be SECURED!!!!

        They had a precedence of being first to be repaid in a situation like this. That is GONE on a whim of the US Executive branch, without due process of law whatsoever. THAT HAS NEVER HAPPENED BEFORE. IT ISN'T SUPPOSED TO HAPPEN THAT WAY.

        Not only that, but the law of Indiana regarding investment of state-managed retirement funds, is likely to contain clauses that restrict investments to retirement grade vehicles, like SECURED bonds, rather than un-secured bonds, preferred stocks, or common stocks.

        This is a problem with the US GOVERNMENT FLOUTING US FEDERAL LAW. The plaintiff/complaintant, or there motives for entering into a contract is immaterial. The fact that the terms of the contract are disregarded by the executive branch, the judicial branch tacitly supporting that, and the legislative branch having ZERO oversight or due process of changing contract and bankruptcy law, is a FLAGRANT violation of the separation of powers, abandonment of check and balance federalism, and a gross over-stepping of constitutionally defined roles of the branches of government.

        If precedent of law is dead, then nothing can be held to the rule of law consistently.

        There rightfully should be a bond market crash, as people drop every last bit of bond holdings, before their value is further destroyed by fiat action of the government.
        • 6 Years Ago
        Yeah, the Indiana treasurer was trying a desperate cover to deflect the fact that he was gambling with pension money, or at the very least betting on the failure of Chrysler.

        It's a good thing that, instead of going to education, the Indiana lottery pays out $30 million to the Teachers’ Retirement Fund and $30 million goes to the
        Police and Fire Pension Relief Fund. So losing $5 million or so is no big deal when the idiot tax is there as a reliable income source.
        • 6 Years Ago
        "Auto companies are what they do and not what they own. They take in a lot of money but it goes right out the door to keep things running. Its not like they have a lot of transferable inventory like a retailer might have. "

        Listen to Jpm100, he know's what he is talking about.

        "The Jeep brand (with Wrangler design), the RWD car platform (300M), Ram truck, and minivan designs are assets with value that would all outlive Chrysler's Chapter 7. "

        Patrick I disagree. I think your are right if the economy was good. In a 16 million sales a year market yes the brands or platform may have value, in 10 million a year market, no.
        Also remember the cascade effect on suppliers if a C7 were to occur. Some suppliers would go out of business, and they might be the suppliers that make parts for the Ram truck that you want to pick up in the C7 auction. Oops.
        • 6 Years Ago
        jpm, Brands, designs, and tooling can all be part of a liquidation, as well as old office furniture. The Jeep brand (with Wrangler design), the RWD car platform (300M), Ram truck, and minivan designs are assets with value that would all outlive Chrysler's Chapter 7.
        • 6 Years Ago
        "While I'm troubled over the Fiat deal and believe that a better deal overall would have come out of Chapter 7"

        I do not think Chapter 7 means what you think it means.

        Chapter 7 means you shut down the company and sell the office furniture, equipment goes for scrap, and paperwork gets recycled.

        Auto companies are what they do and not what they own. They take in a lot of money but it goes right out the door to keep things running. Its not like they have a lot of transferable inventory like a retailer might have. Sebring door panels don't fit on Ford Fusions. They have some production capacity that no one needs right now. So about the only thing of value a liquidated Chrysler might have is the Jeep name and the Wrangler line. That wouldn't have very far in satisfying investors either. A dealer network would be nice, but after a Chapter 7 the majority of their dealers would go defunct carrying unsupported discontinued product.
      • 6 Years Ago
      Wonderful. Lets blow off all bankruptcy precedent and turn our backs on the laws that are in place. Perfect! I want Chrysler and GM to succeed as well, but not under the control of our Federal Government. So much for checks and balances. We are screwed!
        • 6 Years Ago

        The precedence has existed to do EXACTLY this for over 200 years. Its been DONE like this many times in that time. The ONLY PEOPLE who seem to forget this are the conservatives who found no problems doing the EXACT SAME THING for the shipping industry and boatbuilding industry during Bush's term.
        • 6 Years Ago
        Quit whining about the government. But for the government, these assholes would be long gone.
        • 6 Years Ago
        Bankruptcy laws are well over 200 years old. The concept of Chapters simplified things, but what Chapter 11 allows has been part of bankruptcy laws since forever at this point.
        • 6 Years Ago
        Oh shut up.
      • 6 Years Ago
      I have a question for Boxer, Simian, and anyone else who wants to chime in. We all know that secured creditors come before unsecured. There's no disputing that. In a C7 where you sell off the assets (liquidate) there is a pecking order well established by BR law. Stockholders are last in line and usually get bupkis because there is no money left over after everyone ahead of them gets paid.

      But this is a C11, not a C7. In a C11 anyone and everyone can get a cramdown to make the (new) company viable. So, exactly what law or precedent has been violated here? The secured bondholders are getting money, just not as much as they hoped for. Well hells bells, that's what happens in a BR. Or am I wrong? Serious question.

      Also, I think we need to dial back the retoric. I'm tired of hearing about "rethuglicans", "socialists", "facists", the "Obama dictatorship", and examples of leftover Bush Derangement Syndrome. It doesn't help the discussion. Let's discuss that matter at hand, ok?
        • 6 Years Ago
        "The order of liability is not different between chapters of bankruptcy."

        That's not the question I was asking. Yes the order is the same - but - in a C11 does the secured creditor have to take a cramdown like everyone else? The only difference being that they still get paid first, but it's still less than what they might, depending on values of the assets, get in a liquidation. That's the question. If they have to take a cramdown then I don't see a problem. This is not C7.
        • 6 Years Ago
        The order of liability is not different between chapters of bankruptcy.

        At least they aren't supposed to be.

        The definition of a secured bond means that the secured bond holder is paid back FIRST, as the method of securing repayment of the DEBT.

        A bond is not equity. It is DEBT/CREDIT.

        Think of it like consumer debt. A bank lends you secure money cheaper than un-secure money.

        They'll lend you money for a car, with the car as collateral. If you can't pay, THEY GET THE CAR, to re-sell or whatever, to SECURE their return. Same with most Mortgages. They get the house. They'd rather have you pay the CASH, because banks aren't in the car dealership or real estate businesses... which is a point that most bankers feel acutely aware of right now...

        But if they lend you an un-secured loan, without collateral, for whatever reason, the interest is higher, and the principle limits are lower, because they are much more concerned. If you default, they are NOT secured to get their value out of some collateral item.

        If all of the sudden, the government says that banks that gave out car loans, or mortgages, can't collect on the collateral of a default loan, or can only collect less than 30% of the collateral's value, and EAT the rest of the loss...

        That screws the entire concept of secured debt, and throws the contract terms of the agreement out the window.

        That is something the Government is not allowed to do without CHANGING the law to say so, through the legislative process, which theoretically should be accountable to the people. Some of the people being secured debt holders, who would rip their reps a new one if they tried to do this... and reps should be smart enough to know that grenading the bond market in such a way will seriously HARM the economy.

        The executive and judicial branches, however, just showed that they are either too stupid to realize that, or too evil to care about that, and the Legislature is sitting on their thumbs to do nothing about it, when they have oversight authority on the executive and judicial branches.

        We'll see if precidence and things like Stare Decisis come up with the judicial appointment approval process... We'll see if she fits into Ginsburg's method in this case of throwing precedence out the window, with just lipservice paid to actually considering the consequences.
        • 6 Years Ago
        Cramdown is not a term that applies to secured bonds.

        If they were at risk to lose value like that, they wouldn't be considered secured debt units, and they would not have been priced as they were, and they would not have been an allowable vehicle for a retirement fund.

        Your retirement fund probably has a bedrock of "guaranteed return" vehicles, like secured bonds and treasuries.

        Both of those are under attack by a government run amok, changing the rules without due process of law whatsoever.

        Bankruptcy, regardless of which chapter, doesn't negate the terms of a secured bond maintaining it's value. Unsecured bonds, preferred and common stocks are not secured, by definition, and those are later in line and further at risk of losing their value. That is the whole point.

        "Cramdown", if that is an applicable term, doesn't apply equally, BY DEFINITION of the investment type.

        Otherwise there would be no difference. they would all be called one name, with one set of expectations of risk.
      • 6 Years Ago

      Secured debt isn't "secured." It has a higher place in line when it comes to liquidation. Bond holders get paid in liquidation before equity, but the reality here is that there wouldn't have been any money reaching bondholders in liquidation. Chrysler's debts far exceeded their assets, and there are many parties that would have been ahead of bondholders in line at liquidation. The administration was just asking them, in light of this fact, to step back and let them avoid liquidation. If you don't get this, then I guess the Supreme Court is "breaking the law" along with the Congress and the Administration and only a small percentage of conservatives are smart enough to see it. [sarcasm]
        • 6 Years Ago
        It seems to me that Thomas is right. I can recall a C11 where secured creditors got less than the face value of their loans or they got stock in the "new" company which may or may not be eventually be worth more than the original debt obligation.
      • 6 Years Ago
      light at the end of the road
      • 6 Years Ago
      Kumar makes an excellent point.

      Let's all get one thing really crystal clear in this: Indiana's treasurer is a political hack, and the worst kind. The only elected office he was able to get himself elected to prior to his present post was that of county commissioner, and thankfully he was in the minority in that seat (the other commissioners were Democrats), because of his wild, out-there ideas that could have easily bankrupted the county if he'd been in the majority.

      I'd say that gambling the state retirees' pension funds was a pretty out-there idea, given the timeframe in which he invested in Chrysler. And now that it's backfired on him -- not once, but repeatedly -- I believe the voters of Indiana (in particular the retirees whose pensions got this screwing) will realize it's not the federal government to blame, but good ol' Richard Mourdock. So, Mr. Mourdock, you can kiss your job goodbye come election time.
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