Dissident Chrysler Group to Disband
May 8, 2009, 10:09 am E-mail This
Update | 1:34 p.m. A group of Chrysler creditors opposing the carmaker’s reorganization will disband after two more investment firms withdrew from its membership, a lawyer representing the firms told DealBook on Friday.
The decision to dissolve the unofficial group was made in connection with the withdrawal of OppenheimerFunds and Stairway Capital Management, said Glenn M. Kurtz, a White & Case partner representing the bloc. With those two firms pulling out, the so-called Committee of Non-TARP Lenders would hold below 5 percent of Chrysler’s $6.9 billion in secured debt. That would almost certainly eliminate the group’s standing in federal bankruptcy court.
The committee is unlikely to regroup unless other dissident creditors come forward, Mr. Kurtz said.
“After a great deal of soul-searching and quite frankly agony, Chrysler’s non-TARP lenders concluded they just don’t have the critical mass to withstand the enormous pressure and machinery of the US government,” Thomas E. Lauria, a partner of Mr. Kurtz’s and the lead lawyer for the group. “As a result, they have collectively withdrawn their participation in the court case.”
With the group’s disbanding, a little over a week since it made itself public, a vocal obstacle to Chrysler’s reorganization has subsided. The committee’s membership has shrunken by the day as it faced public criticism from President Obama and others. That continued withdrawal of firms led Oppenheimer and Stairway to conclude that they could not succeed in opposing the Chrysler reorganization plan in court, the two firms said in separate statements.
In its first public statement last week, the ad hoc committee said that it consisted of about 20 firms holding $1 billion in secured debt. But hours after Mr. Obama criticized the firms as “speculators,” the group lost its first major member, Perella Weinberg Partners, which changed its mind and signed onto the Chrysler plan.
By Tuesday, the group’s holdings had fallen to about $300 million. And by Wednesday, when the committee made a court-mandated disclosure of its roster, that figure had fallen to $295 million. Judge Arthur Gonzalez, who is overseeing Chrysler’s bankruptcy case, overruled the group’s objections to preliminary approval of the carmaker’s debtor-in-possession financing and sales procedures that would pave the way for the company’s reorganization.
OppenheimerFunds said Friday that “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.”
Stairway also cited the shrinking roster of the dissident creditors as a reason to publicly withdraw its opposition to the Chrysler reorganization plan through the court process. “The fact simply is, however, our group has become too small to have a voice within the bankruptcy,” the firm said in its own statement.
With the withdrawal of OppenheimerFunds and Stairway, all eight members of the Chrysler lenders’ steering committee have either signed onto the company’s reorganization plan or at least pulled back from public opposition. The other members are the four major banks in the group, Perella Weinberg and the hedge fund Elliott Management.
The remaining members of the group are Schultze Asset Management, Group G Capital Partners and Foxhill Capital Partners. Other secured creditors remain opposed to the Chrysler plan, but have refrained from joining the committee for fear of public reprisal, Mr. Kurtz said.
These investment firms had objected to the government forcing them to take repayment of their holdings against their will. Under the terms of Chrysler’s reorganization plan, secured lenders holding a total of $6.9 billion of debt would receive about 29 cents on the dollar in cash.
These lenders had objected to having to take such a discount, despite holding what’s known as first-lien debt that is first in line for repayment, while unsecured creditors received more recovery. The move runs afoul of federal bankruptcy law, the firms have argued.
Chrysler’s proposed plan seeks the shifting of key assets into a new entity co-owned by the United Auto Workers, the Italian carmaker Fiat and the United States and Canadian governments.
“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 in its statement.
But dissident creditors had an uphill battle from the start. The four major banks among Chrysler’s 46 secured lenders — JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs — held about 70 percent of the secured debt.
Representative Gary Peters, Democrat from Michigan, said in a statement: “This is a positive development that will make Chrysler’s quick emergence from bankruptcy much more likely.”
Below is the full statement by Mr. Lauria for the creditors group:
“After a great deal of soul-searching and quite frankly agony, Chrysler’s Non-TARP lenders concluded they just don’t have the critical mass to withstand the enormous pressure and machinery of the US government,” said Tom Lauria, the White & Case attorney representing the group. “As a result, they have collectively withdrawn their participation in the court case.”
Lauria added: “In withdrawing from the fight, each of the members indicated that, despite their inability to continue active opposition to the stripping of their rights in the bankruptcy process, they did not intend to consent to the 29 cent proposal. They continue to stand on and believe in the validity of the principles previously presented:
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They acquired contract rights for their investors that entitle them to recover first and ahead of Chrysler’s other stakeholders;
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The legal, financial and business principles that support their position are longstanding and well-known;
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The current U.S. government-sponsored proposal would defeat their rights to the unfair and unprecedented advantage of Chrysler’s other stakeholders;
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They have been and remain prepared to compromise those rights on commercially reasonable terms in order to facilitate the reorganization of Chrysler;
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They feel that undue pressure has been brought to bear by the Executive Branch to coerce them and others to accept the pending proposal.”
The statement by OppenheimerFunds is below:
OppenheimerFunds, Inc. shares the goals of all Chrysler stakeholders seeking to strengthen the automaker. At all times, OppenheimerFunds has balanced this objective with our fiduciary duty to the mutual funds we manage and their thousands of individual shareholders.
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 Taskforce’s restructuring plan. Therefore, OppenheimerFunds has withdrawn from the Chrysler Non-TARP Lenders Group and will adhere to the determinations of the U.S. Bankruptcy Court.
And here’s the statement from Stairway:
Stairway Capital Management (“Stairway”) has decided, after countless discussions with its investors, to actively withdraw from the Chrysler bankruptcy process.
We withdraw with the knowledge that we acted in good faith. We have fought for what we believe should be fair and equitable treatment under contract and bankruptcy law - in accordance with what traditionally occurs in a restructuring process. We remain steadfast in our view that there should be significantly more value attained, given a normal course bankruptcy negotiation. The fact simply is, however, our group has become too small to have a voice within the bankruptcy.
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.
Finally, we would like to clarify some speculation about Stairway. We are not engaged in the business of underwriting or holding derivative contracts; we do not employ leverage in connection with our investments; and we have never been involved in the subprime mortgage market, at any level or context. Rather, Stairway is just a small private equity firm specializing in special situations and distressed debt opportunities.
And here’s Mr. Peters’ full statement:
“This is a positive development that will make Chrysler’s quick emergence from bankruptcy much more likely.
“For months I have been telling Chrysler’s debt holders that accepting a fair deal with Chrysler was not only in the nation’s interest, but also in their interest because it was better than they stood to gain in bankruptcy. Today, the last remaining holdouts among Chrysler’s creditors have finally reached the same conclusion.
“I still would have preferred Chrysler restructure outside of bankruptcy, but given where we are today I am increasingly hopeful that Chrysler will reemerge as a great American car company supporting hundreds of thousands of American jobs.”
– Michael J. de la Merced
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