Tomorrow May Bring A Chilling Effect On Corporate Bonds

By Kyle-Anne Shiver and Lee Cary

Those who own or may consider buying bonds in companies with substantial union membership will be closely watching the Supreme Court tomorrow.

The Indiana State Teachers Retirement Fund, Indiana State Police Pension Trust, and the Indiana Major Move Construction (AKA "Indiana Fund") lost their appeal before the U.S. Bankruptcy Court, Southern District of New York back on May 31. (Read court ruling here.)

They invested tens of millions of dollars in Chrysler bonds and feel betrayed by a settlement that gave them cents on the dollar, while giving the UAW a sweet deal in equity ownership.

According to bloomberg.com,

"Indiana pension funds that lent Chrysler money said in papers filed late yesterday that they will seek a Supreme Court review of a ruling allowing the sale. The funds asked Justice Ruth Bader Ginsburg for an order blocking the transfer until the high court decides whether to hear the funds' appeal."

If the Indiana Fund is denied a hearing before the Supreme Court and the Chrysler deal proceeds, it could have a broad chilling effect on the sale of bonds in heavily unionized companies.

Going forward, as GM and Chrysler try to re-create new and more profitable enterprises, how many investors will be willing to buy their bonds and throw good money after bad?

Only the federal government will be that reckless. And it is us.