On June 9, in Indiana State Police Pension Trust v. Chrysler LLC, the U.S. Supreme Court cleared the way for Chrysler LLC and its affiliates to sell substantially all of their assets to Italian carmaker Fiat SpA, lifting a temporary block on the sale transaction and paving the way for the troubled car company to emerge from bankruptcy. The issue before the court was narrow: whether to stay certain orders entered by the U.S. Bankruptcy Court for the Southern District of New York, one of which authorized the sale of substantially all of Chrysler’s assets to Fiat free and clear of all liens, claims, interests and other encumbrances under Section 363 of the Bankruptcy Code. In its two-page opinion, the court held that the petitioners (a group of creditors know as the Indiana Funds) did not meet their burden in showing that the circumstances justified imposition of a stay.
Factual Background
On April 30, Chrysler and 24 of its domestic subsidiaries (the debtors) filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code. As of the petition date, the debtors owed about $6.9 billion to their prepetition first lien lenders and $2 billion to their prepetition second lien lenders. The debtors’ obligations to the first lien lenders are reportedly secured by a first lien on substantially all of the debtors’ assets, while the debtors’ obligations to the second lien lenders are reportedly secured by a second lien on the same assets. As of the petition date, Chrysler Holding LLC, the debtors’ parent company, owed the U.S. Treasury Department $4 billion (the TARP loan). As security for the TARP loan and a related promissory note in the amount of $267 million, the Treasury was granted a first-priority lien on all unencumbered assets of Chrysler’s MOPAR and a third-priority lien on those assets in which the first lien lenders and second lien lenders already hold an interest.
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