A group of Chrysler LLC's dissident lenders disbanded, representatives said on Friday, removing the last legal hurdle to the embattled automaker's quest to complete a merger with Italy's Fiat SpA with U.S. government backing.
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.
But Lauria said the group did not intend to agree to the proposal to exchange their debt for 29 cents on the dollar.
About 20 senior lenders, led by OppenheimerFunds and Stairway Capital, had sought to block Chrysler's plans for a sale of its best assets into a new company owned by its union, Fiat and the government.
More than half of the parties that opposed Chrysler's plan had already dropped out of the group as public and political pressure grew to restructure the automaker quickly, and after the dissidents were forced to disclose their names.
OppenheimerFunds said earlier on Friday that it has decided to withdraw as it no longer expects to increase its recovery rate on Chrysler debt by opposing the restructuring plan.
The fund, which is now willing to adhere to the determinations of a U.S. Bankruptcy Court, was among the group of holdout creditors that own a combined $295 million of the automaker's $6.9 billion in distressed debt.
President Barack Obama had criticized the dissenters as speculators for refusing to join Chrysler's biggest banks in a government-brokered deal to wipe out the automaker's $6.9 billion debt and move forward with the Fiat alliance.
U.S. Rep. Gary Peters, whose Michigan district includes Chrysler world headquarters, said the withdrawal of the legal challenge from lenders will make Chrysler's quick emergence from bankruptcy much more likely.
Chrysler, which filed for bankruptcy protection on April 30, is looking to emerge from the in-court restructuring in 30 to 60 days.
The automaker said the transaction with Fiat represents the best and highest bid but would distribute sale notice ahead of the May 20 deadline for alternate bids.
The bankruptcy court has set a process for submission of alternative offers for Chrysler assets.
To be successful, an alternative bidder would have to surpass the value of the terms of the agreement with Fiat, the automaker said in a statement.
Chrysler's U.S. government-supported restructuring centers on spinning off some operations of Chrysler to a new company, which will be 55 percent owned by a union-aligned healthcare trust. Fiat will also have a stake in the new company, along with the U.S. Treasury and Canadian government.
(Reporting by Poornima Gupta, editing by Matthew Lewis)