High court puts Chrysler sale on hold
Supreme Court issues a stay of the sale of Chrysler to the Italian automaker, delaying Chrysler's exit from bankruptcy.
NEW YORK (CNNMoney.com) -- The Supreme Court threw a wrench into the plans to have a quick bankruptcy process at Chrysler LLC, delaying the company's combination with Italian automaker Fiat.
The bankruptcy judge overseeing the Chrysler case had given approval for the company's most valuable assets, such as plants, dealerships and contracts, to become part of a new company in which Fiat would hold a significant stake.
Supreme Court Justice Ruth Bader Ginsburg, in an order issued late Monday, granted a request for a delay of that approval sought by Indiana state pension funds, which had argued that they and other lenders deserved better treatment by the bankruptcy court.
No reason for the delay was given in the order, and there were no details about how quickly the issue could be resolved by the nation's highest court.
The Treasury Department said in a statement that "we understand this to be an administrative extension designed to allow sufficient time for the Court to make a determination on the merits of the request for a stay."
Chrysler said it had no comment about the Supreme Court's ruling.
Thomas Goldstein, a partner at law firm Akin, Gump, Strauss, Hauer & Feld and the founder of Scotusblog.com, which tracks Supreme Court cases, said Ginsburg's decision gives the court more time to consider arguments being made by the two sides. Without the order, a lower-court stay would have expired at 4 p.m. Monday.
"All you can say with confidence is that they're taking a hard look at it, which isn't shocking" he said. "This is just an opportunity to think it through before they allow the irreversible sale to go forward."
Goldstein said he expects the court will decide within a day or two to take up the case or let the bankruptcy court's decision allowing the sale to take effect.
If the court decides to hear the case, it can act very quickly and will likely need to since Fiat has given Chrysler a deadline of June 15 to close the deal.
The Obama administration has stated that Chrysler is no longer viable as a standalone company and that it must join with Fiat in order to justify additional federal tax dollars needed to keep the company alive.
But a Fiat spokesman said Tuesday that the Italian company will not walk away from the deal if it is not completed by the June 15 deadline, Reuters reported.
Chrysler's top executives have argued in court filings that a long delay in approving a deal with Fiat could kill the company by forcing its suppliers to go out of business and leaving dealers without the parts they need to repair Chrysler vehicles on the road.
But Indiana state Treasurer Richard Mourdock told CNNMoney.com Monday morning that it was important to protect secured lenders, including three of his state's public employee pension funds, which have a priority in bankruptcy cases to recover debts owed to them.
The three Indiana funds hold $42 million in loans made to Chrysler and would recover only 29 cents on the dollar under the proposed Fiat-Chrysler deal.
Mourdock also argued that the Treasury Department should not have been allowed to use money in the Troubled Asset Relief Program, or TARP, to help Chrysler and General Motors (GMGMQ) reorganize.
But in a filing Monday U.S. Solicitor General Elena Kagan, arguing for the administration, said the losses to the Indiana pension funds "cannot outweigh" the potential broader problems a collapse of Chrysler would present.
"As an economic matter ... blocking the transaction would undoubtedly have grave consequences," Kagan wrote. "Even if the stay were continued for a short time and Fiat did not withdraw from the transaction, the consequences of delay for both Chrysler and the United States government would far outweigh any benefit to applicants."
Kagan cited estimates that Chrysler is losing $100 million per day.
One auto industry consultant, who spoke on condition that his name not be used, said that if the case drags on for even a few weeks and Chrysler is unable to restart its plants by the end of the month as planned, it could spell doom for Chrysler.
The consultant said such a delay could cause widespread bankruptcies among its suppliers. But the consultant added that Chrysler could get additional government money to sweeten its offer to creditors in order to ensure that a deal goes through -- even if the Supreme Court decides to hear the case.
Some bankruptcy and auto industry experts said Monday that the Supreme Court action could cause problems for General Motors' own bankruptcy case.
GM filed for bankruptcy on June 1 and also planned to have a quick trip through bankruptcy court.
"The GM reorganization is now in serious trouble," said Jerry Reisman, a Long Island bankruptcy lawyer. "If the Chrysler creditors win this case, the GM lenders are going to smell blood and try to do the same thing."
GM spokesman Greg Martin, when asked by CNN if similar lawsuits could hinder its bankruptcy plans, said the company was "surprised" by the ruling, but added that "absent additional information from the Court to better understand the reason for the stay, I'm not sure we have enough to comment on."
But Jeremy Anwyl, CEO of auto research firm Edmunds.com, said GM and Treasury might not have been as willing to use bankruptcy as a way to reorganize the company if they had known the Supreme Court might slow the process.
On the day of GM's bankruptcy filing, President Obama pointed out how quickly the Chrysler bankruptcy case was moving along as proof that GM would be in and out of court within 90 days.
"As George W. Bush learned from his 'Mission Accomplished' debacle, there's always a danger in declaring victory prematurely," Anwyl said.