Bankruptcy Attorney Thomas Lauria Reviews The Chrysler/Fiat Case
Monday, June 08, 2009SUSIE GHARIB: The U.S. Supreme Court today slammed the brakes on a critical deal for Chrysler. The high court temporarily postponed the sale of most of Chrysler's assets to Italian auto maker Fiat. Justice Ruth Bader Ginsburg ordered the delay until the court can review appeals from groups opposed to the sale. Last week a U.S. bankruptcy judge approved the transaction between Chrysler and Fiat, but three Indiana pension funds appealed to the high court to stop the sale. Those funds claim the deal unfairly favors unsecured stakeholders like the United Auto Workers over secured creditors. Joining us now to talk more about the case, Tom Lauria. He's a bankruptcy attorney with White & Case, representing those Indiana investors. Mr. Lauria, welcome back to the program.
THOMAS LAURIA, BANKRUPTCY ATTORNEY, WHITE & CASE: Hi, how are you?
GHARIB: I'm fine, thank you. Let me begin by asking you that if you do make an argument before the Supreme Court, what's the case that you're going to make on behalf of your Indiana investors?
LAURIA: Well, there are really two issues. The first one is that the executive branch of the government has no statutory or constitutional authority to take over and run a car company as it's done with Chrysler. The second argument is that the scheme that the government put together with the company and some of the other stakeholders is really a sham transaction that was designed to upend the priority scheme under the bankruptcy code and to deprive my clients of their contractual rights.
GHARIB: So you're saying on the first point, you're saying that the government didn't even have a right to give those bailout funds to Chrysler. That's number one. Number two is, what's the take away money or restructuring part of the deal, right?
LAURIA: Correct.
GHARIB: All right. So then what's the end game here? What do you want to happen?
LAURIA: Well, we want to see Chrysler be reorganized in a way that complies with the law. I think it's actually pretty easy to do. Rather than try to characterize this as a liquidation of Chrysler for $2 billion which gets paid to the secured lenders and then giving the $20 billion going concern value of the company to junior creditors, what you should do is sell the assets for the full price, $22 billion and then let the creditors share that $22 billion which is cash, debt and equity according to their contractual rights and the priority under the bankruptcy code.
GHARIB: But time is running out here and if the deal between Chrysler and Fiat doesn't go through and Chrysler is forced to just liquidate, my understanding is that the value of the company, the break up value of Chrysler is under a billion dollars.
LAURIA: Well in fact there's no competent evidence in the record what the liquidation value of Chrysler is. The expert who testified in front of the bankruptcy court below left out critical assets from his valuation analysis. He used multiples that were well under market and most interesting to me, he was going to get a $10 million success fee if the deal went through which really raises a question as to whether or not his testimony was biased.
GHARIB: I understand in the court papers that when the funds were making this appeal to the high court, they said that there would be irreparable harm if the sale between Chrysler and Fiat went through. What was meant by that irreparable harm?
LAURIA: Well, it's a fundamental legal principle that not being able to get your issues reviewed by a court is irreparable harm. And what Chrysler has been attempting to do using Fiat as its crutch, saying that Fiat would walk away from the deal if it didn't close by June 15, is they wanted to get the deal closed so that our appeal would be rendered moot. There's a lot of law out there that says the most fundamental form of irreparable harm is losing your right to have your case heard.
GHARIB: Isn't there also harm to other people here, other parties if Chrysler -- if a deal with Fiat doesn't go through between Chrysler and Fiat, isn't it worth more alive than dead and there will be a lot of losers in this whole case even though you may win legally?
LAURIA: Nobody is saying that Chrysler is dead if this deal has to be done in compliance with the law. In fact, Sergio Marchionne, the CEO of Fiat, I understand today said that he would never walk away from this deal which makes all the sense in the world because he's basically getting 20 percent of the company for free. So I think people are jumping to a lot of conclusions to say that simply by requiring Chrysler and the other parties to this deal to comply with the law that we're sounding the death knell for Chrysler.
GHARIB: All right, so let's say you break some new legal ground on this in terms of the best case scenario. What do you think the impact of this would be on the GM restructuring because General Motors is just going through this process now.
LAURIA: The architects of the Chrysler deal are the same architects of the GM deal.
GHARIB: The U.S. government.
LAURIA: Exactly. The Treasury and Chrysler decided that they were going to allocate value that should have gone to the first lenders of Chrysler to their preferred political interests, labor- related claims. In GM, they've got the same favored interests but there they're trying to take the value away from $27 billion of bond holders, same basic structure. So they can't do it in Chrysler. They can't do it in GM either.
GHARIB: All right. Thank you very much for explaining all of this to us. We really appreciate your coming on the program.
LAURIA: Thank you.
GHARIB: My guest tonight, Tom Lauria of White & Case.
