United Auto Workers trust not planning quick Chrysler exit, two sources claim

DETROIT/NEW YORK ― A United Auto Workers trust fund will retain its shares of Chrysler Group LLC in a bid to maximize returns for retiree healthcare costs rather than follow the Obama administration in a quick exit of its investment, two people familiar with the fund’s strategy said.

The union’s healthcare fund, known as the UAW’s VEBA trust, is considering a range of options to cash in on its 45.7 percent stake in Chrysler, at a time when the value of that investment is rising, these people said.

The options could include selling shares to an outside investor, including Chrysler’s majority owner Fiat SpA, or selling in an initial public offering if the stock is eventually listed. Fiat owns 52 percent of Chrysler.

The UAW’s VEBA trust has delegated the decision on how and when to exit its Chrysler investment to its fiduciary adviser, a subsidiary of Brock Capital Group, one of the people said.

Last year, the trust hired Brock Fiduciary Services to manage its stake in Chrysler. Brock also represented VEBA during Chrysler’s talks to refinance $7.6 billion in government debt, and is currently calculating Chrysler’s market value for the union fund, people familiar with the matter said.

Under the 2009 agreement with the U.S. Treasury, VEBA’s proceeds from a sale of its Chrysler stake are capped at a “threshold amount.” This amount was set at $4.25 billion in 2009 and was set to grow at a 9 percent compound annual interest rate, according to the agreement.

When factoring in this interest rate, that cap on the union’s payout has risen to nearly $5 billion currently, one of the sources said.

In the event that proceeds from the sale exceed this amount, the excess cash goes to a third party or a holder. Fiat is the holder under its agreement with Treasury on Thursday, which has given the Italian automaker the option to take over all of the No. 3 U.S. automaker.