Chrysler lender group plans objection to sale
A group of about 20 lenders that balked at the terms of a government-brokered deal to cut Chrysler LLC's $6.9 billion debt, are now planning to object to the company's planned bankruptcy sale, their attorney said on Thursday.
Chrysler LLC filed for Chapter 11 bankruptcy protection in New York on Thursday, saying that it would sell its core assets including its Chrysler, Jeep and Dodge brands into a new company that would be owned by the U.S. government, Fiat SpA (FIA.MI) and the company's workers.
The plan, however, depends on U.S. Bankruptcy Court approval of the sale, and this group of lenders feels the current plan to sell those assets within 30 to 60 days may infringe on their legal rights.
"We're just standing on the law," said Tom Lauria, a bankruptcy attorney at White & Case, representing a group of about 20 Chrysler first lien senior secured lenders.
"They (Chrysler) say they are going to allocate out and distribute the proceeds of the sale in a way that they couldn't do if they were going to do it under a Chapter 11 plan," he added.
The group of lenders Lauria represents includes Oppenheimer Funds, Stairway Capital and other secured lenders who have their own group of investors, including teachers' credit unions, pension funds, retiree plans, college endowments, and retirement funds.
He said the group understands the need for Chrysler to sell itself and for the industry to restructure, but owes a fiduciary duty to its investors and objects to the way Chrysler is trying to divy up the proceeds of the bankruptcy sale without putting it to a creditor vote.
"This is not an objection to rescuing Chrysler, Lauria said.
Rather, Lauria said, Chrysler's proposed plan "inverts" the classic priority scheme written into the bankruptcy code, where senior secured creditors are paid in full first, followed by junior lenders, administrative claims, unsecured lenders and equity holders.
"The sale is an attempt to end-run the procedural protections that are provided to stakeholders by Chapter 11," he said.
"What's happening is the senior secured creditors are going to get 29 cents on the dollar and the unsecured creditors are going to get $10 billion dollars."
Lauria said his clients had viewed the quality of their collateral as secure and took correspondingly low interest rates on their loans to Chrysler because the loans were "seemingly secure." But now the lenders find themselves effectively subsidizing more junior creditors, in a way that would not typically occur under the bankruptcy code, Lauria said.
"No court has ever approved something like this before. It is without precedent," Lauria said.
The dissident group of about 20 lenders, holding about $1 billion in Chrysler debt, said in a statement earlier on Thursday that they had been "systematically precluded" from negotiations with the government. They say they have not taken TARP funds, while the four main Chrysler banks have received about $90 billion in funds from the government's bailout program.
Perella Weinberg, one of the holdout creditors, switched sides on Thursday, saying it had concluded the Treasury's offer was "in the best interests of all Chrysler stakeholders, and our own investors and partners."
"Based on the pressure the administration has put on a number of my clients who have received no TARP funds in the last 24 hours, I cannot imagine the pressure that it brought to bear on the lenders in our group who received TARP funding," Lauria said.
"I've never seen the President of the United States personally thrust himself into a bankruptcy case. The executive branch is going to be present in the court and it will really put pressure on the court to demonstrate to the people of this country that it's watching what's going on in an independent and unbiased way."
[Source: By Emily Chasan, Reuters, New York, 30Apr09]
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