Chrysler sale heads to appeals court

In what is expected to be the last hurdle in Chrysler’s effort to rapidly emerge from bankruptcy, a federal appeals court will hear arguments today on whether the automaker can sell itself to a new company run by Italian manufacturer Fiat.

A federal bankruptcy judge approved the government-orchestrated deal earlier this week, but its completion is being delayed after three Indiana pension and construction funds filed an appeal.

In hundreds of pages of documents filed Thursday in the U.S. Court of Appeals for the 2nd Circuit in Lower Manhattan, the Indiana funds, the U.S. government, Chrysler, Fiat and other stakeholders outlined their positions.

The Indiana pension funds hold about $42 million of $6.9 billion in secured loans to Chrysler. They argue that the sale of most of Chrysler’s assets violates numerous laws.

This “attack on the most fundamental of creditor rights,” the funds argue, has been funded and controlled by the Treasury Department, even though the executive branch is prohibited from spending funds and taking over corporations without congressional approval.

Further, the Indiana funds contend that the Obama administration did not have the authority to spend Troubled Asset Relief Program money intended for financial institutions to rescue automakers.

“Chrysler . . . can be saved without trampling the law and the rights of the first lien lenders,” the funds assert in their 90-page brief. “The issues on appeal call on the court to maintain the rule of law, even set against cries from others that the economy as a whole will benefit from the sale.”

In a 70-page brief, Chrysler criticizes the Indiana funds for their “cockeyed way of looking at the Fiat sale.”

The transaction is a sale of assets for a price that “far exceeds liquidation value, to a purchaser who wants to use the assets in a productive enterprise,” Chrysler said.

Chrysler argues that courts have long recognized that a sale like the one it is seeking is justified in emergencies.

The $2 billion that secured creditors would recover under the Fiat plan -- courtesy of the U.S. government -- is “substantially” more than would otherwise have been possible, Chrysler’s attorneys argue.

The U.S. government contends that the TARP legislation does allow funds to be used to aid automakers.

The Indiana funds’ complaint, the government argues, is not that the government used economic rescue funds to finance the sale, but that the government is not paying them as much as they want. “Put another way, they do not object to TARP funds being used -- they just want more,” attorneys for the government wrote.

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Tse writes for the Washington Post.