Group drops fight against Chrysler plan
NEW YORK — The group of dissident Chrysler bond holders challenging Chrysler LLC’s government-backed restructuring plans, said Friday that it is dropping its court fight.
The dissolution of the group — at least on an official basis — clears away the largest obstacle standing in the way of Chrysler LLC’s plans to sell the bulk of its assets of Italy’s Fiat Group SpA and could pave the way for the quick exit from bankruptcy protection that the automaker and the federal government desire.
Geoffrey Gwin, principal of the Group G Capital Partners LLC hedge funds, said that after weighing the obstacles ahead and along with the opposition they had faced before, the group’s five remaining members realized that they couldn’t mount an effective legal challenge.
But that doesn’t mean that the deal reached before Chrysler’s Chapter 11 filing — which would exchange the automaker’s total of $6.9 billion in secured debt for $2 billion — has the group’s support.
“We’re still opposing this and not signing the consents, but the active fight has been more challenging,” Gwin said.
Thomas Lauria, the group’s lead attorney, said in a statement that the lenders he represented, and others, felt undue pressure from President Barack Obama’s administration to accept the deal.
The group eventually came to the conclusion that there wasn’t enough of them to “withstand the enormous pressure and machinery of the U.S. government,” he said.
In addressing Chrysler’s Chapter 11 filing last week, Obama said the lenders were seeking an “unjustified taxpayer-funded bailout” after Chrysler and his auto task force cleared the company’s other hurdles, including the Fiat deal and a cost-cutting pact that the United Auto Workers ratified last week.
Earlier this week, the group’s members said in a court filing that their nine funds represented $295 million, or just four percent, of Chrysler’s total secured debt. Previous estimates had pegged the group at 20 members with about $1 billion in debt.
In the days leading up to Chrysler’s bankruptcy filing, four banks holding 70 percent of Chrysler’s secured debt agreed to a deal that would allow them to recoup about one-third of the original face value of their investments.
But the dissident bond holders said the deal was unfair and put the needs of other groups, such as the United Auto Workers union, ahead of their own. Attorneys for the group threatened to block the sale and argued in court against giving Chrysler access to $4.5 billion in government-supplied bankruptcy financing as well as the proposed sale procedures.
Both motions were ultimately approved by U.S. Judge Arthur Gonzales despite the objections.
Jeff Manning, a managing director with New York-based Trenwith Securities LLP specializing in bankruptcy and restructuring, said he thought the bond holders had a good case and was surprised to see them end their efforts.
Even with the bond holders group gone, Manning said Chrysler still needs to tackle a number of challenges including its billions of dollars in pension liabilities.
Manning said that while Chrysler may be able to complete the sale of some of its assets in the next 60 days, he expects the automaker to linger in Chapter 11 bankruptcy protection for the next three years.
“It still has a certain ‘Alice in Wonderland’ kind of feeling about it,” Manning said of the case.
Chrysler released a statement Friday saying it was pleased with the group’s decision to withdraw its opposition to the proposed sale, saying that it was in the best interest of all the automaker’s stakeholders.
Earlier Friday, OppenheimerFunds Inc. and Stairway Capital Management, both former members of a steering committee composed of seven Chrysler lenders, released statements saying that they were dropping out of the group because it had gotten too small.
“Given the reduced number of senior creditors willing to continue to pursue an alternative to the federal automotive taskforce’s proposed settlement, OppenheimerFunds has determined that the senior creditors can no longer reasonably expect to increase the recovery rate on the debt they hold by opposing the task force’s restructuring plan,” OppenheimerFunds said in announcing its withdrawal.
In its statement, Stairway maintained that it only pushed for “fair and equitable” treatment for its investors and lashed out against the Obama administration for brushing aside the needs of secured debt holders.
“As American taxpayers, we appreciate the unprecedented efforts taken by the current administration to stabilize the economy and the auto sector; but as fiduciaries to our investors we take exception to being compelled, as Chrysler senior secured lenders, to unfairly shoulder the burden relative to various junior creditors,” Stairway said.
A Treasury Department spokeswomen did not immediately return a message seeking comment. Messages were also left for representatives of the other group members Princeton, N.J.-based Foxhill Opportunity Master Fund LP and Schultze Asset Management LLC in Purchase, N.Y.
AP Auto Writer Kimberly S. Johnson contributed to this report.