NEW YORK – The names of a handful of Chrysler debt holders who oppose the automaker's bankruptcy were disclosed Wednesday, but a number of others dropped their opposition, a week after President Barack Obama publicly chastised the group for not supporting his plan to help remake the company.
The names of the investment firms representing nine funds, disclosed in a court filing by the group's lawyers, comes amid reports of death threats against the dissident creditors. They say they are being steamrolled in bankruptcy court because of their refusal to go along with a government-brokered deal that would have reduced the Chrysler's secured debt.
The lenders, which include previously disclosed members Stairway Capital Management and OppenheimerFunds Inc., represent just $295 million, or about 4 percent, of Chrysler LLC's total secured debt of $6.9 billion. Earlier, lawyers for the group estimated its size at 20 members with about $1 billion in debt.
The dissident lenders don't support the deal because they claim it puts the financial interest of other parties, such as the United Auto Workers, ahead of secured lenders such as themselves.
In addition to OppenheimerFunds and Stairway, other investment firms in the group include Schultze Asset Management LLC, Arrow Hedge Partners Inc. and Group G Capital Partners LLC.
A spokesman for OppenheimerFunds Inc. declined to comment on Wednesday. The firm manages two funds that hold Chrysler debt. It was also a member of a steering committee composed of seven Chrysler lenders.
Chrysler, the No. 3 U.S. automaker, filed for bankruptcy protection last week and is trying to complete a sale of most of its assets to Italian automaker Fiat Group SpA. It hopes to emerge from bankruptcy in 30 to 60 days. Meanwhile, all of its factories have been idled.
In the days leading up to Chrysler's bankruptcy filing, four banks holding 70 percent of the $6.9 billion in debt agreed to a deal that would give the lenders 29 cents on the dollar. But the dissident lenders refused to budge, saying the deal was unfair because they deserve to recover more than other creditors like the UAW, which could get a 55 percent stake in the new company.
Obama criticized the funds for seeking an "unjustified taxpayer-funded bailout" after Chrysler and his auto task force cleared the company's other hurdles, including the Fiat deal and a cost-cutting pact that the UAW ratified.
But George Schultze, managing member of Schultze Asset Management LLC in Purchase, New York, who runs three funds that lent money to Chrysler, accuses the Obama administration of circumventing bankruptcy laws to pay back the UAW for its support in the November election.
The lenders, mainly hedge funds and banks, loaned money secured by Chrysler assets under contracts that made them senior to other creditors, he said.
"There is a payment priority schedule where senior creditors should be paid before junior creditors," he said, adding that the deal "upsets the apple cart in terms of well-settled bankruptcy law."
Under the deal backed by the Obama administration, a UAW trust fund that will take over health care expenses for Chrysler's union retirees starting next year received a 55 percent stake in the new Chrysler, plus the company will pay $4.6 billion into the trust between now and 2023.
The lenders, however, were offered $2.25 billion to give up $6.9 billion in debt secured by Chrysler assets, or about 32 cents on the dollar, and no equity stake.
Schultze said the lenders who held out will argue in bankruptcy court that the deal didn't follow the law, and that the trust and other creditors should not be satisfied before the senior secured lenders.
The administration's behavior will give investors pause about making further loans secured by assets for fear that they could lose their senior position, he warned.
"This, of course, going forward, will change everybody's expectations," Schultze said. "The credit markets are fragile enough."
A White House spokesperson wasn't immediately available for comment late Wednesday.
UAW President Ron Gettelfinger last week denied that the union received preferential treatment, contending that the 55 percent Chrysler stake now is worthless. The trust must pay health care bills totaling $10.9 billion for about 82,000 retirees, as well as current workers who eventually will retire.
If the stock rises enough in value, the union plans to sell it as soon as possible to fund the trust, he said.
At a Tuesday court hearing, U.S. Bankruptcy Judge Arthur Gonzales ruled that a filing revealing the identities of the dissident group's members didn't need to be sealed, despite allegations of death threats against them.
"The combined effect of the president directly chastising people for exercising their legal rights and for the court being unable to offer any protection has resulted in a number of people discontinuing affiliation with the group," said Thomas Lauria, an attorney for the lenders.
But Lauria said several former members of the group, as well as other lenders, still do not support the government-backed deal. "They're just not going to stick their heads up out of the foxhole," he said.
Perella Weinberg Partners' Xerion Fund dropped out of the lenders group last week after Obama singled out the lenders group as a reason why Chrysler was forced to file for bankruptcy protection, saying that it believed a settlement would be the best thing for everyone involved.
In court, the group of Chrysler lenders faces an uphill battle in trying to block the sale of the vast majority of Chrysler's assets to Italy-based Fiat. The group's newly diminished size won't make things any easier.
"They've lost a fair amount," Seton Hall Law School Professor Stephen Lubben said, referring to the number of members. "It will affect their ability to argue against the sale, because they look pretty much like a minority position now, an extreme minority position."
Michael Haber, an Atlanta-based partner in the law firm Smith, Gambrell & Russell LLP, argued that if the lenders group has legitimate arguments, the amount of debt they hold won't matter that much.
"If their concerns are valid, I don't think the diminished number is significant. It could even be a dollar," Haber said.
At the end of a more than seven-hour hearing that stretched late into Tuesday, Judge Gonzales approved bidding procedures for the proposed sale to a group including Fiat, saying they represented a "clear and orderly process."
Bids for all or part of Chrysler's assets must be submitted by May 20, and a determination of the lead bid made by May 26. A final sale hearing would take place on May 27 and the sale could close in as little as 30 days after that.
Attorneys for Chrysler argued that a speedy sale was needed to preserve the value of the company's assets. But the lenders group claimed the sale procedures were designed to prevent other bidders from coming forward.
In Washington on Wednesday, White House press secretary Robert Gibbs said that the Obama administration was pleased with the judge's actions. He said they boosted confidence that Chrysler can emerge from bankruptcy in a quick and orderly fashion.
Another dissident lender, Geoffrey Gwin, principal of the Group G Capital Partners LLC hedge funds, would only say that he stands by an April 29 letter published in The Wall Street Journal.
Gwin — whose father lost most of his pension in the Delta Air Lines bankruptcy — accused the government of casting aside "more than two centuries' of upholding creditor rights" with its Chrysler plan.
A message was left for James McGovern, chief executive of Arrow Hedge Partners Inc. of Toronto, which also has a fund among the top Chrysler lenders.