By Emily Chasan
NEW YORK, May 21 (Reuters) - Indiana State Treasurer Richard Mourdock said on Thursday he objects to Chrysler LLC’s plan to quickly sell itself in bankruptcy because it is a dangerous path that would hurt pensions for thousands of his state’s retirees.
The Obama administration’s auto task force and Chrysler have come up with a plan to sell the company to a “New Chrysler” owned by the government, its union and Fiat FIA.MI.
Mourdock says the plan, which doles out payment to more junior creditors before senior creditors, threatens to upend historical investment trends and would unexpectedly cost his state’s pension funds millions of dollars.
“What we have here is a situation that is so unacceptable in its long-term risk to the capital markets, that somebody had to step forward,” Mourdock said in an interview with Reuters on Thursday.
“I bleed red, white and blue, but when I see the federal government getting involved — and as soon as they get involved they think they can change the rules — those are the things we have to look at very, very cautiously,” he added.
Mourdock, a Republican elected to his position in 2006, said the state’s pension funds make “conservative” investments in U.S. Treasuries, agency debt and secured corporate debt. State funds that invest in riskier equities try to balance those bets with highly rated secured corporate debt, he said.
Mourdock’s office estimates the Indiana State Police Pension Fund lost $147,400 and the Indiana Major Moves Construction Fund lost $896,000 due to Chrysler’s current restructuring plan. The Indiana Teacher’s Retirement Fund, which is not managed by the state treasurer’s office but is partaking in the legal challenges, lost a minimum of $4.6 million, his office said.
“They bought according to the rules, and then the rules got changed,” Mourdock said.
The Indiana pension funds filed court papers this week requesting that an examiner be appointed to investigate Chrysler’s business decisions, and that the company be placed into the hands of a Chapter 11 trustee that can act independently of the government. They also mounted a challenge to the company’s plan in U.S. federal district court. In bankruptcy court this week, attorneys for Chrysler and supporters of the company’s plan argued that the judge would have to balance the pension funds’ claims that they are owed several millions of dollars, against Chrysler’s need to restructure quickly, so that thousands of employees, retirees and other businesses that depend on the company can continue.
“I understand that bankruptcy is about equity, but this is about the law, and the precedent, I think, is very, very disturbing,” Mourdock said.
Mourdock has been following Chrysler’s negotiations with its lenders closely, noting that senior secured lenders who have agreed to Chrysler’s plan to pay them 29 cents on the dollar, originally demanded to be paid in full. He saw earlier objections to Chrysler’s plan from a group of dissenting secured lenders, and said he expected his funds would take part in an eventual class action lawsuit opposing the plan.
But things didn’t develop as Mourdock expected, he said. The dissenting secured lenders quickly disbanded and other state pension funds that had invested in Chrysler debt, like California — which is seeking its own bailout — and Michigan
— Chrysler’s home state — seemed unlikely to go against the — Chrysler’s home state — seemed unlikely to go against the administration’s plan, he said.
“I am the last man standing,” Mourdock said.
“I want those retirees to get the fullest possible value for their dollar. That’s what this is all about .... We’re going to consider every option and every step along the way.”
But he said the experience has greatly changed his perspective on his state’s investments and what constitutes a “risky” investment for his pension funds.
“Suddenly when banks go against their own interest and the interest of their own shareholders, that just says how much usurpation there has been of the capital markets by our federal government at this point,” Mourdock said.
He said his state’s funds would change their investment strategy.
“Our portfolios are no longer going to buy the secured debt of American corporations that are accepting bailout moneys,” Mourdock said, noting he would have concerns about holding debt of General Motors Corp (GM.N) now, or even some insurance companies deemed to be of national importance.
“It is an unacceptable risk for us to purchase that debt,” he said.
(Reporting by Emily Chasan; Editing by Richard Chang)
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