Chrysler alliance with Fiat may complete today after clearance by US Supreme Court

ERJ staff report (AN)

Automotive News

Washington DC (Reuters) -- The Supreme Court cleared the way for the government-backed sale of Chrysler LLC to a group led by Italy's Fiat S.p.A., a victory for the bankrupt US automaker and the Obama administration.

The high court rejected a request from Indiana pension funds and other opponents of the transaction to delay the deal while they challenged Chrysler's sale to Fiat, a UAW-aligned health care trust and the US and Canadian governments.

Chrysler is aiming to close its sale this morning, a person familiar with the plans said.

To close the sale, $2 billion in funds provided by the US government must be transferred to Chrysler's creditors, and the wire transfer deadline had already passed by the time the high court cleared the deal late Tuesday, this person said.

The person, who declined to be named because the plans are not yet public, said Chrysler is aiming to execute the funds transfer and close the deal by 9 a.m. EDT today.

The Chrysler case has been widely regarded as setting a precedent for General Motors, which is using a similar quick-sale strategy in its bankruptcy in New York.

The Supreme Court in a brief two-page order said the challengers had not met their burden of showing that a delay was justified.

The court's action was not a decision on the merits of the underlying legal issues, the justices said. And they said their assessment was "based on the record and proceedings in this case alone."

The Chrysler dispute marked the first time the Supreme Court had been confronted by legal issues involving the US government's power to deal with the economic crisis.

Earlier on Tuesday, Chrysler won Bankruptcy Court approval to carry out its plan to cut off a quarter of its US dealerships. A total of 789 stores were to end their ties to Chrysler beginning today.

White House 'delighted'

The White House welcomed the high court's action.

"We are delighted that the Chrysler-Fiat alliance can now go forward, allowing Chrysler to reemerge as a competitive and viable automaker," said a White House official, speaking on condition of anonymity.

"We are gratified that not a single court that reviewed this matter, including the US Supreme Court, found any fault whatsoever with the handling of this matter by either Chrysler or the US government.".

The Supreme Court's refusal to block the deal capped three days of intense activity, with written briefs filed over the weekend and even earlier Tuesday by both sides in the legal battle.

The court lifted a temporary stay of the sale granted by Supreme Court Justice Ruth Bader Ginsburg on late Monday in a move widely seen as giving the court more time to weigh whether to intervene.

The pension funds argued that the Chrysler sale unlawfully rewarded unsecured creditors ahead of secured lenders, that it amounted to an illegal reorganization plan, and that the US Treasury Department overstepped its powers by using bailout funds for Chrysler when Congress intended the money for banks.

Liquidation threat

Chrysler and the Obama administration urged the Supreme Court to allow the sale to go forward and said a long delay could kill the deal, resulting in the automaker's liquidation and the loss of more than 38,000 jobs.

They cited Chrysler's worsening financial situation, with $100-million-a-day losses. The sale agreement sets a June 15 deadline to close.

It would have taken the votes of five of the nine Supreme Court members to put the deal on hold. The court acted with no recorded dissent from any of the justices.

Chrysler filed for bankruptcy protection on April 30 to complete the sale and alliance with Fiat within 60 days, in a case that analysts have seen as a test for the much bigger and more complex bankruptcy of GM.

The $2 billion sale of Chrysler's assets to a new company that will be 68 percent controlled by a health care trust aligned with the UAW was approved by a US bankruptcy judge on June 1.

Fiat will control an initial 20 percent; the US and Canadian governments will control the other 12 percent.

Both a federal bankruptcy judge and a US appeals court in New York have approved the sale.

From Automotive News (A Crain publication)