By Tomoeh Murakami Tse
Washington Post Staff Writer
Saturday, May 9, 2009
NEW YORK, May 8 -- The small but staunch lenders group that stood against the sale of Chrysler disbanded Friday, removing the only major obstacle in the Obama administration's plan to quickly restructure the automaker in bankruptcy court.
The breakup of the organized opposition improves the government's odds of getting Chrysler out of bankruptcy quickly and could portend a similar road for General Motors should it also be forced to file for protection.
The decision came after the asset manager OppenheimerFunds and hedge fund Stairway Capital, who were leading the effort, told the group in a conference call Friday morning that they were dropping out, according to several people involved in the process. They were doubtful that the coalition, given its shrinking size, would be effective in court and were weary from the "intense pressure" they were under, said Tom Lauria, an attorney for the group.
"After a long and very difficult conversation, the group concluded that it was no longer a viable enterprise," Lauria said. "People aren't up to taking the heat from publicly fighting with the government."
Robert Gibbs, the White House press secretary, said in a briefing with reporters that the development was "another important and promising step in Chrysler's favor."
"Despite some skepticism that Chrysler could do this quickly, I think the auto team and the President are heartened that this appears to be happening as quickly as we had hoped."
On Tuesday, Chrysler won a major victory in bankruptcy court when a federal judge, over the strenuous objections of the lenders group, approved a key part of the automaker's plan to quickly restructure by selling most of its assets to an entity jointly owned by Fiat, the United Auto Workers and the U.S. and Canadian governments.
Chrysler filed for bankruptcy last Thursday after some of Chrysler's senior secured lenders rejected the government's debt repayment plan. The Obama administration had made a final offer of 33 cents on the dollar for the loans after negotiations that spanned several weeks. A majority of the lenders, including four large banks, had agreed to the deal. But it was not enough to keep the carmaker out of court.
In a televised speech last Thursday, Obama characterized the holdouts as "speculators" who "endanger Chrysler's future by refusing to sacrifice like everyone else."
The group began to shrink soon after the comments. Initially, members said they represented 20 financial firms holding about $1 billion of Chrysler's $6.9 billion in senior secured loans.
Perella Weinberg Partners, a boutique investment bank in New York, was the first major lender to withdraw. By Wednesday, the group revealed in a court filing that its number had dwindled to five, collectively holding just $295 million of the debt.
Despite dropping the legal challenge, fund managers in the group said they were still opposed in principle to the government's plan and would not sign on to the offer.
"Everyone in the group I know of is still objecting and refusing to sign the consent to what they're doing," said Geoffrey Gwin, principal of Group G Capital Partners. "But I don't think we're going to be objecting anymore in the case itself."
Gwin added that the legal costs -- which would have been shared by a smaller group -- were a factor in dropping the public objection. "If we had unlimited resources and owned a larger position, we would probably be willing to be the last ones standing," he said.
The group had argued that the government-orchestrated sale of Chrysler illegally forces senior creditors to accept less money than junior creditors. They also said they had a fiduciary duty to the investors in their funds to seek a just share and noted that the large banks signing on to the deal had all accepted money from Treasury's Troubled Assets Relief Program.
But after a week in the spotlight, the group abandoned the legal battle.
"Given the reduced number of senior creditors willing to continue to pursue an alternative to the Federal Automotive Task Force'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 Taskforce's restructuring plan," OppenheimerFunds said in a statement. "Therefore, OppenheimerFunds has withdrawn from the Chrysler Non-TARP Lenders Group and will adhere to the determinations of the U.S. Bankruptcy Court."
Staff writer Peter Whoriskey contributed to this report.