Monday, June 08, 2009
"Indiana wants me"-- no, its pension funds want Chrysler to pay back its debt before Fiat takes over
The Indiana State Police Pension Trust and Indiana State Teachers Retirement Fund had bought about $17 million in Chrysler’s debt, and would recover only about $12 million if the administration’s and TARP’s plan for Fiat to buy most of Chrysler were to go through.
The natural question is why pension funds buy questionable debt as an investment – since pension funding is becoming a source of anxiety to retirees and a big political issue. The answer seems to be that in ordinary bankruptcy law the pension funds were still considered “senior lenders” who should have held a preferred place in line in this “sheriff’s sale” of Chrysler.
The funds claim that the administration and court have ignored normal bankruptcy law, endangering the stability and faith of pension funds around the country who have invested in other troubled industries with the expectation that normal bankruptcy procedures are followed.
The Bloomberg story by Tiffany Kary, Linda Sandler and Christopher Scinta is rather detailed and is here.
Jeff Bennett has a story in the Wall Street Journal newswire here.
Justice Ruth Bader Ginsberg issued a brief “stay” on the sale to Fiat today. Fiat could back out if the deal were not completed by June 15, leading to a Chapter 7 liquidation of Chrysler and a much sharper effect on suppliers.
Remember that 1970s song “Indiana Wants Me, But I Can’t Go Back There” with the police sirens. I spent the summer of 1970 in Indianapolis on a work assignment on my first job, still dodging frost heaves in the roads. I remember "Washington and Meridian." How old long memories come back.
Attribution link for the Soldiers and Sailors Memorial in Indianapolis.
Note: On June 9, NBC Nightly News reported that UAW retirement fund had been treated preferentially by the bankruptcy settlement with Fiat, so the struggle seem to be between pension funds and their union or political connections. This cannot be good.