Document Reveals Hedge Funds Opposed to Chrysler Sale
By Tomoeh Murakami Tse
Washington Post Staff Writer
Wednesday, May 6, 2009 3:39 PM
washingtonpost.com
NEW YORK, May 6 -- A small group of hedge funds revealed their identities today as the force behind the battle to stop the government-orchestrated sale of Chrysler, according to a court document.
The funds, which include Group G Partners, Schultze Asset Management and Foxhill Capital Partners, together hold $295 million of the $6.9 billion in senior secured Chrysler debt, according to the filing. Also in the group are the asset manager OppenheimerFunds and Stairway Capital, a Long Island-based hedge fund, which had previously been publicly identified as opposing the Chrysler sale.
The disclosure comes after U.S. Bankruptcy Court Judge Arthur Gonzalez on Tuesday ordered their identities be revealed by noon today. Attorneys for the lenders had sought to keep their clients' names secret, citing threats to their safety and damage to their reputations.
The lenders were sharply criticized by President Obama last week, who blamed them for forcing the third-largest U.S. automaker into bankruptcy. Obama had characterized the group as selfish "speculators."
George Schultze, the managing member of Schultze Asset Management, had told the Post last week that his firm was "simply seeking to enforce our bargained-for rights under well-settled law."
"Hopefully, the bankruptcy process will help refocus on this issue rather than on pointing fingers at lenders," he said.
The government had offered 33 cents on the dollar for the $6.9 billion in loans held by senior debt holders. Most of the lenders, including four large banks that have accepted government rescue funds, had consented to the deal. The dissident lenders believe they could recover more in a liquidation.
"Their preference quite frankly is to not get in harm's way," Tom Lauria, a lawyer representing the lenders' group, said at a packed hearing Tuesday in requesting his clients remain secret. Lauria said some lenders had agreed to join the legal battle only if they could remain anonymous.
Lawyers for Chrysler and Fiat dismissed the threats after they were described in court as statements issued by politicians and anonymous "rants" posted on The Washington Post Web site. They said such comments should not be taken seriously. On Monday, Lauria told Gonzalez that some of his clients had received death threats.
"It's a bit ironic, your honor, that what Mr. Lauria is complaining about is anonymous postings on the Internet . . . anonymity promotes irresponsibility," Hydee Feldstein, an attorney for Fiat, said to laughter in the courtroom.
In the end, Gonzalez denied the group's request to remain unidentified, saying they had not provided evidence of a "real danger of physical harm."
The ruling came on the same day the dissident lenders were dealt a major blow. Over their strong objections, Gonzalez in a 11 p.m. ruling Tuesday approved a key part of Chrysler's plan to quickly restructure by selling most of its assets to Italy's Fiat.
The ruling provides a critical boost to the government's goal of quickly reorganizing the automaker so as not to scare away suppliers and potential customers. Chrysler plans to use the bankruptcy process to sell its assets to a new entity jointly owned by Fiat, the United Auto Workers and the U.S. and Canadian governments.
The sale procedure approved by the judge sets a May 20 deadline for potential bidders to put in competing offers, with a hearing on May 27 to approve the sale. Chrysler contends that a swift proceeding was critical for it to remain a viable company, while the dissident lenders argued that the rushed timeline effectively shut out any bidders that might be interested in offering different terms.
During arguments Tuesday, Chrysler lawyers said the company's value was diminishing every day it was in bankruptcy proceedings, with its plants idled, suppliers and dealers in limbo, and consumer confidence in the brand wavering.
On Monday, the dissident lenders failed to persuade Gonzalez to reject Chrysler's request to begin using $4.5 billion in government loans to fund operations while in bankruptcy.
Chrysler filed for Chapter 11 bankruptcy protection Thursday after the handful of lenders declined to accept the government's offer of 33 cents on the dollar. The dissident senior lenders contend that the sale illegally rewards junior creditors at their expense, despite laws granting "absolute priority" to the senior lenders. The UAW, for instance, would get the bulk of its pension payments, the dissident lenders said.
The group also contended that the proposed sale process and compressed schedule approved by Gonzalez are "designed" to prevent a competitive bidding process for Chrysler's assets and do not maximize the sale price. Under law, bankruptcy proceedings must ensure "highest and best" value in the type of asset sale at the heart of Chrysler's bankruptcy strategy.
The U.S. government, the dissident lenders said, is "relying on purported authority provided by TARP" and "foisted" the proposed sale upon Chrysler, which was forced to accept the deal and abandon attempts to pursue other options. Chrysler received $4 billion in government funds through the Troubled Assets Relief Program in December.
In court documents and testimony, Chrysler executives outlined the automaker's efforts in the years leading up to the bankruptcy filing to form alliances with various competitors around the globe, including Fiat, to establish a global footprint and offer fuel-efficient cars.
Among the discussions that fell apart were "Project Go Global" with Nissan and "Project America" with General Motors, Chrysler said. In the end, Chrysler executives said, only Fiat remained as a potential partner. |
