Three of Chrysler’s secured creditors are mounting a fresh attempt to thwart the carmaker’s Chapter 11 reorganisation on the grounds that it
violates their legal rights and the US government’s authority under the Troubled asset relief program.
The three – all Indiana state pension funds – are among a group of 46 creditors that had appeared to back away this month from efforts to derail
the process under which a “new” Chrysler would emerge from bankruptcy protection by July 1. The new entity would be owned by a union healthcare
trust, the US government and Italy’s Fiat.
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Chrysler, with backing from the US Treasury, had offered its secured creditors just under 30 cents on the dollar to settle claims totalling $6.9bn.
Four big banks, holding the bulk of the claims, accepted the offer following political pressure from Washington.
However, the Indiana State Teachers’ Retirement Fund said on Wednesday that it had a fiduciary responsibility to its members to continue the fight.
The fund stands to lose $4.6m under the current settlement proposal and has teamed up with Richard Mourdock, Indiana state treasurer, to try to
recover those losses.
The latest objections could galvanize other lenders to renew their challenge. “I fully support their motion and believe a number of lenders
(including us) will ultimately join their group,” said George Schultze of Schultze Asset Management, one of the creditors that had abandoned an
earlier legal fight.
In a court filing on Wednesday, the Indiana funds accused the government of adopting a strategy of “the ends justify the means”. They also said
the Treasury “has taken constructive possession of Chrysler and is requiring it to adopt a sale plan in bankruptcy that violates the most
fundamental principles of creditor rights – that first-tier secured creditors have absolute priority”.
The Indiana funds say the current plan will benefit more junior creditors, and that Tarp funds were meant to be funneled only to financial
institutions.
“Whatever powers the Treasury department may have under Tarp,” the funds said, “it does not have the power to control the entire restructuring
of a company to the detriment of the company’s secured creditors and for the benefit of other interest groups so that certain broader policy and
political objectives may be achieved.”
Realted story:
"About Those 'Speculators' . . . Pension funds also got whacked by Uncle Sam"
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