Dissident Chrysler Group Is Likely to Disband
Update | 10:57 a.m.
A group of
Chrysler creditors opposing the carmaker’s reorganization
is likely to disband after two more investment firms withdrew from its membership, a person briefed on the matter told DealBook on Friday.
The withdrawals of
OppenheimerFunds and
Stairway Capital Management will likely drop the group, calling itself the Committee of Non-TARP Lenders, below 5 percent of Chrysler’s $6.9 billion in secured debt, this person said.
That would almost certainly eliminate the group’s standing in federal bankruptcy court.
Ever since the group made public last week, its 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.
Oppenheimer said Friday that “senior creditors can no longer reasonably expect to increase the recovery rate on the debt they hold by opposing the Taskforce’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 Oppenheimer 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, people with knowledge of the situation told DealBook.
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.
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.
–
Michael J. de la Merced
http://dealbook.blogs.nytimes.com/2...aws-from-dissident-chrysler-group/?ref=global
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