Friday May 8, 11:40 PM
Creditors drop opposition to Chrysler bankruptcy plan
By Charlotte Raab
NEW YORK (AFP) - Chrysler's efforts to restructure under the watchful eye of a bankruptcy judge picked up momentum Friday after a group of creditors dropped their objections.
The next major hurdle in the restructuring is the elimination of nearly 25 percent of the troubled automaker's 3,200 dealership across the United States, industry observers said.
The creditor group, which initially held about a billion dollars in bonds, had objected to the plan by President Barack Obama's administration to reduce Chrysler's debt to help create a partnership with Italy's Fiat (Milan: F.MI - news) .
Many of them quickly backed down after Obama publicly chastised the investment firms and hedge funds, who were largely blamed for pushing the storied automaker into bankruptcy.
Only nine creditors with less than 300 million dollars in debt retained their objections by Friday afternoon.
"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," their lawyer, Tom Lauria, said in a statement.
"As a result, they have collectively withdrawn their participation in the court case."
The group is identified as the "Chrysler Non-TARP Lenders," because the members have not received aid under the government's Troubled Asset Relief Program (TARP), a 700-billion-dollar measure to stabilize the financial system.
Oppenheimer was one of three funds to back down on Friday morning.
It said it withdrew its opposition because "given the reduced number of senior creditors willing to continue to pursue an alternative," it determined that "senior creditors can no longer reasonably expect to increase the recovery rate on the debt they hold."
Lauria said the remaining creditors still consider the proposal to be unfair and contrary to basic "legal, financial and business principals" and do not intend to consent to the proposal "despite their inability to continue active opposition to the stripping of their rights in the bankruptcy process."
Chrysler, which filed for bankruptcy protection on April 30, said it hopes to wrap up the court process within 30 to 60 days by selling the automaker's principal assets to a new company.
The new firm would be majority owned by the United Auto Workers (UAW) union, with small stakes by the US and Canadian governments, which would contribute some 10.5 billion dollars to the venture.
Italian automaker Fiat would initially take a 20 percent stake in the firm that would rise to 35 percent and could reach 51 percent as early as 2013 if Chrysler is able to repay its government loans.
Chrysler appears to have achieved several key objectives during the first week of hearings, said Richard Tilton, an analyst at Covenant Review in Chicago.
"(Chrysler) did a very clever thing when they shut down all their plants when they filed for bankruptcy because it reduced the worth of the company," said Tilton, who has worked as a bankruptcy lawyer for the past 30 years.
The move made it harder for dissident creditors to argue that Chrysler was worth more than the two billion dollars offered by Fiat.
Favorable rulings by bankruptcy judge Arthur J. Gonzalez on scheduling the sale of assets to Fiat and payments for suppliers have set the stage for Chrysler to leave court protection within 60 days, Tilton said.
Gonzalez rejected objections from a group of Chrysler creditors and approved a timetable late Tuesday for the sale of the automaker's main assets.
That decision could come as soon as May 27 and allow a new firm to inherit the Chrysler nameplates.
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