Indiana Drops Chrysler Complaint After Agreement to Return County’s Bonds

CHICAGO — Indiana has dropped a securities fraud complaint against Chrysler LLC after the automaker agreed to return $5.5 million of bonds that Tipton County issued to finance infrastructure for a now-abandoned transmission plant.

Chrysler — now known as Old Carco LLC — returned the bonds last week as part of a consent agreement signed Oct. 22 by a federal bankruptcy court in New York.

A German transmission maker that was to partner with Chrysler on the new plant, Getrag Transmission LLC, had previously returned another $5.5 million of bonds, Indiana officials said.

Another $3.1 million related to the deal remains outstanding. The county is reportedly making payments on those bonds, said a source familiar with the situation.

Located about 30 miles outside Indianapolis, the $530 million transmission plant was a joint venture between Chrysler and Getrag that was expected to generate 1,400 new jobs. Tipton officials agreed to issue tax-exempt bonds to finance water and waste infrastructure projects as well as set up a tax-increment financing district around the plant to support financing of the deal.

In September 2008 the Tipton County Redevelopment Commission privately placed $14.1 million of TIF bonds. Chrysler and Getrag purchased $5.5 million each, and Harris Bank NA bought the remaining $3.1 million.

Just a day after the county issued the bonds, Chrysler informed Getrag it could not provide the guarantees necessary for Getrag to secure the remaining funds for the project, and the deal collapsed. The two parties turned to the courts, suing each other for breach of contract. This year both companies filed for bankruptcy protection.

In April, Indiana Secretary of State Todd Rokita filed a complaint with the Indiana Securities Commission alleging that Chrysler allowed the county to issue the bonds without informing Tipton officials that it had failed to reach a complete agreement with Getrag.

After months of negotiations, the secretary announced this week that an agreement had been reached.

“This action ends a nearly tragic economic development saga, and will benefit Tipton County and the entire region as it moves forward with their business development and job creation efforts,” Rokita said in a statement.

However, the county remains on the hook for the $3.1 million of TIF bonds, which were senior to the $11 million.

The $11 million junior bonds were secured solely by a pledge of TIF revenue — essentially the footprint of the plant — and if revenue fell short, the county was under no obligation to pay, according to a source. But the $3.1 million series features an additional property tax pledge from the county, and the county is currently making payments on those bonds.

Tipton County Commissioner Jane Harper said that the county would use the $11 million of bonds as an incentive to attract another company that could use the building, which is 80% finished.

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