The Supremes Clear the Path for the Chrysler-Fiat Deal Skip to main content

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The Supremes Clear the Path for the Chrysler-Fiat Deal


The Chrysler bankruptcy saga continues. As you've undoubtedly heard by now, in a move to save itself from certain collapse after bankruptcy, Chrysler crafted a deal to sell a big chunk of its assets to the Italian car-maker Fiat, while at the same time shedding most of its debt. The bankruptcy judge handling the case approved the sale last week, finding the deal was necessary to avoid liquidation. Chrysler said if it was forced to liquidate, it would have to eliminate some 38,500 jobs. The deal was set to close on Monday of this week.

But the heads of two Indiana pension funds -“ the Indiana State Police Pension Fund and the Indiana Teachers' Retirement Fund -“ and Indiana's Major Moves Construction Fund appealed the judge's order to the Second Circuit U.S. Court of Appeals in New York, seeking to block the sale. The Indiana groups hold a collective total of $42.5 million of the billions of dollars in secured debts that Chrysler hopes to shed through the deal. Not surprisingly, they're unhappy about this because if these obligations are wiped out, the funds will be incapable of meeting their financial obligations to the members.

Last Friday, the Second Circuit backed the bankruptcy judge and ruled the sale could proceed. But it gave the Indiana groups the weekend to take their challenge to the United States Supreme Court. The trio did just that, filing an emergency petition with the high court on Sunday, urging it to hear the case and to postpone the sale in the meantime. On Monday, they got a temporary reprieve. Associate Justice Ruth Bader Ginsburg -“ who handles such petitions from the Second Circuit -“ entered an order staying the sale while the court decides whether to hear the case.

The high court was expected to act quickly, because if the deal doesn't close by the 15th, Fiat has the right to back out. The Obama Administration, through the Solicitor General's Office, filed a brief with the Supremes, urging them to allow the sale to go forward. In the brief, Solicitor General Elena Kagan told the court, "As an economic matter . . . blocking the transaction would undoubtedly have grave consequences.- Today, the Supremes denied the Indiana groups' request, clearing the path for the sale to take place.

The outcome of this case is certainly significant for Chrysler. But GM must have also been waiting eagerly in the wings. GM is banking on a similar type of deal as part of its strategy to emerge successfully from bankruptcy. With the green light for Chrysler, GM can rest at ease -- at least for this part of its bid for survival. The Chrysler-Fiat deal could close as early as Wednesday morning.

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