« Courts - "Bush v. Gore Foes Join to Fight Gay Marriage Ban " | Main | Ind. Law - What to call the two Indiana University law schools now? »

Thursday, May 28, 2009

Ind. Gov't. - Still more on: "Pension Funds Object to Chrysler Sale, Want Trustee"

Updating this ILB entry from Tuesday, a story in the Detroit Free Press, by Greg Garder, reports:

Altavilla’s testimony came after attorneys for three Indiana employee pension funds argued that Chrysler should have sold itself off in pieces because that would have been better for secured lenders — even if hundreds of thousands of employees lost jobs.

U.S. Bankruptcy Judge Arthur Gonzalez gave the Indiana pension funds a full day in court to pursue their case, but offered no hint of whether it would slow or scuttle the sale of Chrysler assets to Italian automaker Fiat, which is on track to close by June 15.

The three Indiana pension funds hold a fraction of $2.6 billion in Chrysler loans. All the other secured Chrysler lenders — who held $6.9 billion in debt backed by Chrysler’s factories, vehicles, technology and real estate — have accepted a plan to receive $2 billion in cash.

Last week, Judge Gonzalez denied a motion by the Indiana pensioners to withdraw the entire case from bankruptcy court and send it to a U.S. District Court. They then appealed that decision to U.S. District Court, where on Tuesday Judge Thomas Griesa decided the pension funds had legal standing to appeal, but said they had to return to bankruptcy court.

Today, White & Case, the law firm that represents the Indiana pension funds, launched an assault on the federal government’s effort to force secured creditors to accept less than 30 cents on the dollar for their loans.

White & Case is arguing to Gonzalez that the pension funds should be made whole even if it means Chrysler fails and its 55,000 employees lose jobs, hundreds of suppliers go out of business and the UAW tells its retirees they have no health insurance.

Karen Asner, a lawyer for the Indiana funds, asked retired Vice Chairman Tom LaSorda about whether Chrysler was more concerned about surviving or paying its debts.

“Your main concern was that Chrysler survive regardless of its value to its owners,” she said. “At no point prior to this bankruptcy filing did you find it your duty to maximize the return to the … secured lenders?”

But LaSorda defended Chrysler’s approach to help the company survive. “Not only would thousands of people lose their jobs … Suppliers not be paid and dealers wouldn’t get product," LaSorda said. “This enterprise wouldn’t survive unless we found a partner.”

In court, the liquidation value of Chrysler was pegged as anywhere from $17.2 billion to $25.2 billion in liquidation, or less than $2 billion.

Testimony continued late today. Judge Gonzalez had not yet said whether the hearing would continue Thursday. At the end of the hearing, Gonzalez is expected to approve or delay Chrysler’s deal with Fiat.

A story by Lynne Marek of The National Law Journal reports today:
State officials in Illinois, Ohio and Indiana are objecting in the U.S. Bankruptcy Court for Southern New York to the sale of Chrysler LLC's assets to Italian automaker Fiat SpA in an effort to protect workers in their states.

Illinois Attorney General Lisa Madigan and Ohio Attorney General Richard Cordray said in separate filings this month that they oppose terms of the sale because it would allow Fiat to avoid assuming the workers' compensation liabilities of injured Chrysler workers in their states, leaving the states to pick up the slack. The attorneys general said they're not opposed to the sale if the agreement can be revised to pay for the injured workers' benefits, which they believe the remaining Chrysler entity couldn't afford. * * *

In its limited objection on May 13, Ohio's attorney general said that his office "opposes any sale that does not fully provide compensation" for Chrysler's injured workers. He said that if Chrysler defaults on the workers' compensation claims, the state's Bureau of Workers' Compensation would have to take them on, dealing a blow to its workers' compensation program and ultimately hurting the Chrysler workers' benefits. The default would most likely make Fiat ineligible for certain workers' compensation programs in the state, the filing said. The Illinois Attorney General's Office is making similar objections.

Indiana State Treasurer Richard Mourdock objected to the "illegal" plan to sell the assets on the ground that state worker pension funds that invested in debt securities tied to Chrysler would be adversely affected by the sale. The pension funds invest on behalf of state police, teacher and other employees and cover about 100,000 workers and family members. The Indiana treasurer argues that Chrysler shouldn't be allowed to sell collateral backing the senior secured debt claims held by the funds and use the proceeds to pay off unsecured trade and union creditors.

Posted by Marcia Oddi on May 28, 2009 08:06 AM
Posted to Indiana Government