Judge Ruth Bader Ginsburg put a hold on the deal just ahead of the bankrupt carmaker’s restructuring deadline of 4pm yesterday, following objections from three Indiana state pension funds which between them hold a mere $42m of Chrysler $6.9bn unsecured debt.
The objections are based on the conditions of the proposed salvage measures, in which the Union of Auto Workers gets a better deal than the pension funds and other bondholders. This despite the fact that it is an unsecured creditor and should thus be pretty much last in line for repayment under US bankruptcy law.
Depending on who you listen to, the stay is either a minor administrative glitch that won’t affect the eventual outcome, or a major hurdle with the potential to send not only the Chrysler/Fiat deal spinning off the road, but also the much bigger and politically more important GM restructuring plan.
The Obama administration, whose taskforce put together the deal, is saying unsurprisingly that it’s nothing much to worry about. Some disgruntled Chrysler and even GM creditors however are talking the delay up as much as they can in hopes of regaining their ‘rightful’ place at the head of the queue when the bones are picked over.
For some reason the MT hotline to the Supreme Court doesn’t seem to be working this morning, so we can’t claim our usual special insight into the story. But if we had to bet we would say that the deal probably will go through more or less as planned.
However there are one or two reasons to believe that there is a real, if modest, chance that the whole thing could be scuppered, leaving Chrysler to be flogged off piecemeal and causing a lot more pain throughout the US and international supply chain.
First is the fact that Fiat has a get out clause stating that if the details aren’t sorted by June 15th it can just walk away. And even minor legal hiccups could take things well beyond that deadline. The second is the chance that more creditors – of both Chrysler and other troubled firms - will start to sniff the chance of getting more of their money back, even at the expense of the long-term prospects for jobs and the wider economy.
Either way, president Obama is discovering the hard way that even the most powerful man in the world has to play by the rules. Even if no-one is quite sure what they are.