The U.S. federal court late on Tuesday agreed to hear an appeal related to the bankruptcy of Chrysler LLC, potentially extending the auto maker's stay in Chapter 11 reorganization by at least several days.
The U.S. Court of Appeals for the Second Circuit said it would hear an appeal by a group of Indiana pension funds challenging the sale of most of Chrysler's assets to the company's proposed partner, Fiat SpA of Italy.
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The deal must close by June 15 or Fiat can potentially walk away from the deal, Chrysler has said.
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The Indiana pension funds -- the Indiana State Teachers Retirement Fund, the Indiana State Pension Trust and the Indiana Major Moves Construction Fund have argued the sale of Chrysler is unconstitutional, saying the plan upends the rights of senior lenders to be paid off before junior creditors. The Indiana funds also contend that the U.S. Treasury Department doesn't have the authority to lend bankruptcy financing under the Troubled Asset Relief Program because Chrysler isn't a financial company.
. . . The Indiana funds say that, under Chrysler's plan, creditors with less seniority, namely the UAW, would see a better recovery. The UAW's health-care trust has an unsecured claim against Chrysler for about $10.5 billion. In addition to the equity stake in Chrysler that the trust would receive, it would also get a $4.5 billion note. The Indiana funds bought the Chrysler debt at 43 cents on the dollar in July 2008. Most other secured lenders have agreed to the restructuring plan Chrysler has proposed in bankruptcy court that will pay them 29 cents on the dollar for their debt.