A group of Chrysler LLC's dissident lenders disbanded, representatives said on Friday, removing the last legal hurdle to the automaker's quest to complete a merger with Italy's Fiat SpA
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 U.S. 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 had decided to withdraw as it no longer expected 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 withdrawal of the legal challenge from lenders would 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.
Chrysler's Chief Executive Bob Nardelli said on Friday in a memo to staff that the decision by dissident lenders to withdraw opposition to the Fiat deal was in the best interest of all stakeholders.
And he said all Chrysler salaried workers may have to take a two-week unpaid leave as a condition of debtor-in-possession financing.
While this two-week leave may need to be implemented, we are assessing our progress toward the budget savings that were described in our court filings and hope to achieve sufficient savings to delay any unpaid leave or to render it unnecessary, he said in the memo that was obtained by Reuters.
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, Chrysler said in a separate statement.
Chrysler's U.S. government-supported restructuring centers on spinning off some operations of Chrysler to a new company, which would be 55 percent owned by a union-aligned healthcare trust. Fiat, the U.S. Treasury and the Canadian government would also have stakes in the new company.
Analysts and bondholders are closely watching the Chrysler bankruptcy process because it may set the course for General Motors Corp
GM, which like Chrysler is operating on government aid, has until the end of May to convince the U.S. government that it can be a viable business by clinching cost-cutting deals with bondholders and its union.
Peter Kaufman, restructuring expert and president of New York Investment bank Gordian Group LLC, said that GM would most likely follow Chrysler into bankruptcy.
This is not playing by the rules, but the government has shown it's not terribly interested in playing by the rules, Kaufman said. I think this will embolden the government to do what they're already contemplating for GM.
(Reporting by Poornima Gupta; Additional reporting by Kevin Krolicki and Soyoung Kim, editing by Matthew Lewis, Toni Reinhold)