List of Objecting Creditors Shrinks In Chrysler Case

By Tomoeh Murakami Tse
Washington Post Staff Writer
Thursday, May 7, 2009

NEW YORK, May 6 -- The group of lenders that had balked at the government-orchestrated sale of Chrysler has grown noticeably smaller in the week since the automaker filed for bankruptcy.

Once numbering more than 20, the group counted just five members Wednesday after a federal bankruptcy judge ordered members to identify themselves publicly.

The firms, which include Schultze Asset Management, Group G Partners and Foxhill Capital Partners, together hold $295 million of the $6.9 billion in senior secured Chrysler debt, according to a newly filed court document. Also in the group are the asset manager OppenheimerFunds and Stairway Capital, a Long Island hedge fund, which are leading the effort.

Attorneys for the lenders had sought to keep their clients' names secret, citing threats to their safety and damage to their reputations. But U.S. Bankruptcy Court Judge Arthur J. Gonzalez refused, saying members had not produced sufficient evidence of "real danger of physical harm."

The lenders were sharply criticized last week by President Obama, who blamed them for forcing the third-largest U.S. automaker into bankruptcy. Obama characterized the group as "speculators" who were fishing for "an unjustified taxpayer-funded bailout."

In an interview, George Schultze of Schultze Asset Management said such comments had been unfair and "extreme." While the group is dwindling in size because of "undue political pressure from the administration," Schultze said, he vowed to keep up the battle.

"We are staying in this fight until we get justice," he wrote in an e-mail. "I suspect we will need to appeal some illegal rulings but we will see."

Schultze, who was identified as a holdout lender in a Washington Post article last week, added that he had not received threats but has been "glancing over my shoulder more than usual."

Chrysler, which had received $4 billion in taxpayer funds, filed for Chapter 11 bankruptcy protection last Thursday after some of its lenders declined to accept the government's offer of 33 cents on the dollar for their loans. The majority of the lenders who hold Chrysler's $6.9 billion in senior secured debt, including four large banks, had agreed to the deal.

The government had hoped for an out-of-court settlement that would allow Chrysler to form an alliance with the Italian automaker Fiat. Now, Chrysler is in court seeking approval to sell its assets to a new entity jointly owned by Fiat, the United Auto Workers and the U.S. and Canadian governments.

The holdout lenders contend that the sale illegally rewards junior creditors at their expense, despite laws granting "absolute priority" to the senior lenders.

Last week, the group said it comprised 20 members holding $1 billion of the $6.9 billion in senior loans. Today's filing shows that five members holding less than $300 million remain. Some lenders had agreed to join the legal battle only if they could remain anonymous, their lawyers said.

Besides Schultze Asset Management, the other four investment firms either did not return phone calls or declined comment. OppenheimerFunds has previously said that it had been willing to compromise but the government's offer was too unfair to its funds' investors.

A lawyer for the group argued in court this week that the lenders could recover more money in a liquidation, but on Tuesday its cause was dealt a major blow when Gonzalez approved a relatively quick bidding schedule for Chrysler.

The judge set a May 20 deadline for potential bidders to put in competing offers to the Fiat deal, with a hearing May 27 to approve a sale.

In Washington, President Obama's press secretary, Robert Gibbs, said the administration was pleased with the decision.

"While there is still a lot of work to do, this development gives us further confidence that Chrysler's bankruptcy will be quick and orderly, as the president stated last week, and that the company will emerge from this process within the 30- to 60-day period we originally discussed," Gibbs said.

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