This is now getting interesting. Conventional wisdom among most bankruptcy commentors was that the objections to the Chrysler deal were not strong from a legal standpoint. Thus the fact that the Supreme Court has decided to stay the deal comes as a surprise, particularly to Team Obama, which has put its prestige and considerable muscle behind getting the deal done. And any complications or delay with Chrysler puts the much larger and more complex GM bankruptcy at risk.
The deal with Fiat requires that the transaction close by June 15.
From Bloomberg:
Justice Ruth Bader Ginsburg ordered a delay in Chrysler LLC’s planned asset sale to a group led by Italy’s Fiat SpA while the U.S. Supreme Court considers a request for a longer postponement that might scuttle the deal…. Indiana pension funds and consumer groups asked for an order blocking the sale while the Supreme Court decides whether to take up the funds’ appeal.
Ginsburg’s one-sentence order, which came only in the pension fund case, said the bankruptcy court orders allowing the sale “are stayed pending further order” of the Supreme Court.
Chrysler said in court papers that the sale is necessary to stanch losses of $100 million a day.
Yves here. I would assume Chrysler made a more compelling from a legal standpoint than “we really need the deal done.” But maybe not (apologies for not independently checking the filings, but Internet access continues to be dreadful). From the Wall Street Journal:
Ahead of the decision, Chrysler and the federal government warned such an intervention might lead to the liquidation of the auto maker….
“There is no other bidder for Chrysler’s assets,” an attorney for Chrysler said in a legal brief. “The only other viable alternative for Chrysler is to proceed with a liquidation that will return no more than $800 million for all constituents.”
The appeals were filed over the weekend after the Second U.S. Circuit Court of Appeals in New York approved the acquisition of most of Chrysler’s assets by a group led by Fiat. The appeals court stayed the sale until Monday so the funds could make their case to the Supreme Court. A U.S. bankruptcy judge early last week approved the transaction…
A lengthy delay for a Chrysler-Fiat transaction would jeopardize jobs and tarnish President Barack Obama’s efforts to save Chrysler and General Motors…
According to a Chrysler filing, the Indiana pensions challenging the deal are set to lose $5 million dollars under the terms of the Fiat purchase. The pension funds, in their own filing, put their losses in the “millions of dollars.”
The pension funds argued the sale, orchestrated by the U.S. and Canadian governments under bankruptcy laws, was illegal and that the federal government exceeded its bailout authority with its involvement. “The negative economic consequences of permitting an unlawful sale to proceed may well over time dramatically outweigh Chrysler’s short-term harm,” the funds said.
Update 3:00 AM: The commentary in the media suggests that the prevalent view is that the deal will still go ahead, and with not much delay. From the New York Times:
The delay could be resolved by Tuesday, freeing Chrysler to join forces with Fiat. But if the court decides to hear an appeal that lasts weeks or months, it could put Chrysler at risk of going out of business. Fiat, the only company to show an interest in acquiring most of the assets of Chrysler, can walk away from the deal if it is not concluded by June 15.
In a broader context, such a decision would also give the justices an early opportunity to consider the scope of the wide-ranging but not unlimited authority that Congress granted the president to address the economic crisis…..
Several legal experts noted that the action should not be interpreted as a signal of the full Supreme Court’s intentions. And it is not unusual for the court to issue a stay while it considers whether to hear a case, but it rarely grants the kind of expedited hearing on the merits that the Indiana funds are seeking.
“I’m astonished she even stayed the sale, but I find it quite encouraging, because I find it important that they take a close look at the issues,” said David A. Skeel Jr., a law professor at the University of Pennsylvania. “I think it’s a good move. My guess is in the end they will approve the sale.”
The Financial Times noted the upbeat reading from Team Obama versus the possibility of the deal gong pear shaped:
…people close to the Obama administration’s car industry task force and Chrysler suggested that the stay was not a catastrophe and that the sale was likely to proceed as planned. “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,” said an administration official….
Elena Kagan, US solicitor-general, said in a brief opposing the Indiana funds’ request that unless the Supreme Court was able to complete a full review of the Fiat deal by the deadline, a stay order “could itself have the effect of preventing the sale from going forward”.
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Those bankruptcy commentators are full of BS.
The rule of laws were broken when this deal was made. The SCOTUS made the right decision.
Stop government looting!
I can imagine how events unfold here. First, the sale goes nowhere. Then Chrysler goes under and is liquidated. Third, this creates a large ripple effect and the economy suffers again. Now, things get interesting. Four, the people who cheered this course, blame the Obama administration for not doing their job properly and creating the downward spiral in the economy. Ah, the wonderful world of blogging and commenting, where one is always right, actions have no effects, and world is ideal. If only government could live in such a world, how beautiful everyting would be!
SCOTUSBlog has much better commentary, including Ginsburg temporarily blocks Chrysler deal. I found this portion particularly illuminating:
The wording of Ginsburg’s order . . . is the conventional way by which a Justice or the Court carries out an action that is expected to be short in duration, and not controlling — or even hinting at — the ultimate outcome. Any speculation that her order meant the Court was leaning toward a further postponement would be unfounded.
From what I read on SCOTUSBlog I expect the Indiana pension fund appeal to be shot down. It is not so clear for the others which involve injury/death from OldChrysler products or the lawsuit involving a death due to improper work conditions (asbestos), though these can be solved by altering the deal (i.e. transfer liability to NewChrysler).
Probably nobody expected this to reach the SCOTUS, but now it has one can't imagine this being a big deal. To be sure, the Supremes wouldn't want to be tarred with the same brush as the Executive, once history looks back on all this. A quick "hold on a second, Sparky" and they can at least say they went over the fine print before passing forward the lower court decision. A lot of this is turning into CYA; if in the morning we hear "never mind, as you were" we'll suspect the game was rigged all along the way.
Obama has no idea how to run the government. What he did was wrong. He broke the rule of law. If he did it the right way we wouldn't need the SCOTUS to rule on it.
I find it pathetic that people keep defending Obama. He is a thief and the last time I check thievery is a crime.
Chrysler liquidation has little bearing on the coming economic meltdown coming very soon. It might even help in the recovery. Less baggage to carry.
Last Friday and continuing today, the short end of the bonds market has crashed. And you what this means.
Personally, I think that the objections to Chrysler's 363 deal is very strong from a legal stand-point.
The sale to Fiat and putting UAW claims above senior lenders are artificially tied together.
The sale to Fiat CAN go through with or without the package deal Obama crafted. I am sure that replacing the junior creditors with the senior creditors by June 15.
What exactly can the UAW do with a SCOTUS judgment against them? Refuse to work?
The UAW is a HUGE political donor and a huge voter base. That's why they were able to get special treatment.
Take Bush's decision to invade Iraq because of Big Oil interests, and replace it with Obama's support of UAW and you have the same imperial presidency.
Will be very interesting, if it is accepted as a case, just where each Judge votes
Argel – Fiat executive Altavilla said in bankruptcy hearings that carries those liabilities to the New Chrysler was a dealbreaker. Of course, I doubt anyone would hold it against him if he was forced to admit he misspoke and the deal was rejigged.
Hi Yves:
Given that Ginsburg is a liberal, I suspect she is more concerned about product liability than whether a pension fund bought up Chrysler bonds (which was speculative). The thoughts are, the sale will proceed . . . or at least we better hope so.
Yves: Conventional wisdom among most bankruptcy commentors was that the objections to the Chrysler deal were not strong from a legal standpoint.
——–
Bankruptcy lawyers I know have said the exact opposite. They have said that the creditors claims are very strong legally, but weak politically.
(And take back your accussation, about me not being right about you backtracking re not seeing a benefit to banks purchasing assets from each other using the PPIP. You challenged me to cite to you saying that, so I did. And you ignored me.)
Someone lookin fer an asskickin?
I dare ya, I dare ya….
This whole thing started when the banks got stuck holding the bill for cerberus "buying" Chrysler from Daimler.
The banks own a lot more of chrysler than Cerberus ever did. Cerberus is a bank now. They got what they wanted.
Please don't pay attention to the man behind the screen.
The bondholders should get nothing, they are the people who put a price to this deal, and allowed cerebrus to mortgage the purchase through the same banks.
The smelliest part of this story is how silent the big banks are about the BK. They are the major creditors. Why are they so quiet?
What about Cerberus? Nothing from them either.
I have suspected for a while that the claims of the UAW are very safe. Most of the money due to them is beacause of past legal judgements, and further to the front of the line that most people think. I think the banks know this and are settling on a deal where they get something.
The SC will pass, this is probably them saying that they are paying attention. They won't rule on this when they can just pass, and the majority of the stakeholders are onboard.
Fiat?
Argel,
When this post went up, the news had just broken and the only "commentary" was on news sites. I make not pretense to be a BK attorney and therefore depend on the views of other experts. I appreciate the pointer to SCOTUS but am a bit puzzled that you suggest that there was a deficiency here when I make no pretense to be a BK expert. That is not the function of this blog.
boo boo,
I do not know who your unnamed bankruptcy attorneys are. I am going primarily by what I read on Credit Slips,written by law professors that specialize in credit and bankruptcy. They have given a consistently dim read of the objection, citing both law and precedent, and further have said (as we linked to in LInks recently) that upending Chrysler would have invalidated many recent BKs, such as FIlenes. The use of 363 in this case does appear to have a good bit of precedent.
The latest commentary, amusingly, refers to SCOTUSblog and notes that they deem the stay to have "no legal signfiicance."
I suggest you search the blog for my policy on comments. You are perilously close to running afoul of it.
First, for you to demand that I respond to you is inappropriate. If you read the blog, I seldom respond to comments, preferring to let other readers sort it out. I have also made it abundantly clear that I am busy on a book, have cut back the time I am spending on the blog, and one of the areas I am largely neglecting is comments. So for you to accuse me of choosing not to respond, as oppose to not having seen your comment, is WAY out of line.
In general, the tenor of your comments is often combative, which is not kosher.. I have not been policing and saw your latest comment only randomly. so I have not doubt there have been others who are also being unduly aggressive. When I am finally on WordPress, which gives me much more ability to deal with that sort of thing, I do intend to start taking action.
In addition, still not having seen your alleged retort, I take issue with your characterization. I have said from the get-go that the PPIP is a covert and inefficient subsidy to the banks. Subsidy = benefit. I objected to the gaming idea because given that this program was ALREADY a costly way to disguise the optics (the optics were the ONLY valid reason for doing it this way), the gaming of an already bogus program is the banks thumbing their nose at any pretense of rule of law. Rortyblog has a long discussion of the many variants of Enron-style trades that could be used to game the program and FURTHER ENRICH the already rich subsidies embedded.
As I recall from my original response, you did not reply to my argument in that thread (although you may have gone back after the the discussion had died out). And it appears again you are responding narrowly, picking out one element of the argument in isolation and attacking that, You are more interested in trying to score points than have a real discussion.
And I am not going to track this down, because, as I have indicated over the last few days, the bandwidth here is erratic and the download times are awful when there is a connection, while writing a comment is not bandwidth intensive. My limited ability to take care of the blog is not well served by engaging with you further on this matter. I need to give priority to the needs of the broader readership.
Bankruptcy lawyers I know have said the exact opposite. They have said that the creditors claims are very strong legally, but weak politically..
While I'm not a bankruptcy lawyer, I do have common sense.
Of course bankruptcy lawyers are always going to say that any claim is strong legally (unless one is retained to say the opposite), since it's in their interest for every case to be as complex and protracted as possible.
in the end
its the lawyers that win….
Yves, I was just passing what I thought was useful information along. Blogging can be collaborative and you should consider my post in that light. You're doing fine and I appreciate the no-nonsense, don't pull your punches approach!