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Wednesday, May 20, 2009

Ind. Gov't. - "Pension Funds Object to Chrysler Sale, Want Trustee" [Updated]

From Bloomberg News this afternoon, a story by Christopher Scinta and Bob Van Voris that begins:

A group of Indiana pension funds that hold first-lien debt of Chrysler LLC objected to a plan to auction the company’s assets and said a U.S. District Court judge should rule on whether the sale is lawful.

The Indiana State Teachers Retirement Fund, Indiana State Police Pension Trust and Indiana Major Move Construction filed court papers late yesterday and today asking U.S. Bankruptcy Judge Arthur Gonzalez in New York to block the sale, claiming the plan is illegal and tramples their rights. A hearing to approve the sale to a group led by Fiat SpA, or a bidder that tops its $2 billion offer, is scheduled for May 27.

Gonzalez denied a motion by the funds to stay the sale process while they seek a review by the U.S. District Court of whether the sale is proper. The funds’ attorney Thomas Lauria said after today’s hearing that the group already had filed papers with the district court.

The funds also have asked for the appointment of a trustee to run Chrysler, saying the company has “ceded control over their business and their restructuring efforts to the United States Treasury Department,” which is using the bankruptcy to reward certain creditors that “the government deems politically important,” according to one of the filings.

“The Treasury Department 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,” lawyers for the pension plans wrote. * * *

The case is In re Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)

[More] See this press release from Indiana State Treasurer Richard Mourdock.

[Updated at 5:05 PM] The Volokh Conspiracy reports Indiana's objection in the Chrysler matter, linking to the Treasurer's press release. A Volokh reader responds:

That press release is obviously bogus. It claims that pension funds are involved, but only speculators own Chrysler bonds.
"The Indiana State Teachers' Retirement Fund Issues Statement Regarding Losses Stemming from the Chrysler Bankruptcy and Recent News about the Teachers' Union Insurance Trust" is the heading to a just received press release. Some quotes:
INDIANAPOLIS, IN (May 20, 2009) -- Steve Russo, Executive Director of the Indiana State Teachers' Retirement Fund (TRF), is announcing that TRF will join forces with State Treasurer Richard Mourdock to seek recovery of monies that would be lost should the Chrysler bankruptcy be approved in its current form. TRF would incur a $4.6M loss should the current bankruptcy plan be approved.

As explained in a separate press release from the State Treasurer's office, the proposed bankruptcy settlement overturns nearly two hundred years of established law by redefining "secured creditors" to mean something less. In the past, to be "secured" meant that an investor was first in line to receive payment in the event of a bankruptcy; "non-secured" creditors would receive payments after secured creditors were paid. In the Chrysler bankruptcy, however, secured creditors are slated to receive $0.29 on the dollar while non-secured creditors receive higher values and end up with a 55% ownership of the newly restructured company.

Russo noted, "When TRF's investment manager took the decision to make this investment, it was under the well established presumption that in the event of bankruptcy, TRF--along with the other secured creditors--would be first in line. With the unprecedented proposal before the bankruptcy court, TRF is being asked to move to the back of the line behind non-secured creditors. Moving to the back of the line means receiving less money than what we would have received in a 'normal' bankruptcy. * * *

This week, there was significant media coverage surrounding the Indiana State Teachers' Association (ISTA) insurance trust. The Indiana State Teachers' Retirement Fund (TRF) wants to reassure its members that TRF and ISTA are completely separate and unrelated legal entities. TRF is a quasi-state agency that administers the Indiana State Teachers' Retirement Fund on behalf of the State of Indiana. TRF is governed by a Board of Trustees appointed by the Governor. TRF is not impacted by the financial status or dealings of the ISTA.

[More] Meanwhile, as reported by Deanna Martin of the AP:
INDIANAPOLIS | The National Education Association has taken over its troubled Indiana affiliate after problems with its insurance trust landed the teachers union in financial trouble and spurred investigations.

Indiana State Teachers Association President Nate Schnellenberger has sent an e-mail to members saying the NEA will have complete control of the state's largest teachers union.

The NEA appointed trustee Edward Sullivan to run ISTA. Schnellenberger says Sullivan will try to keep ISTA running smoothly while exploring financial options for the union and making corrections as needed.

Schnellenberger says ISTA's board requested the NEA trusteeship to ensure the union is financially viable.

ISTA is working to untangle its insurance trust from millions of dollars in liabilities while the state and the FBI investigate whether fund managers did something more than make risky investments.

[Still More] Reuters is reporting this evening: "Judge refuses motion to postpone Chrysler bankruptcy."

Posted by Marcia Oddi on May 20, 2009 04:19 PM
Posted to Indiana Government