Chrysler’s efforts to restructure under the watchful eye of a bankruptcy judge picked up momentum on 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 dealerships across the US, industry observers said. The creditor group, which initially held about US$1 billion in bonds, had objected to the plan by US President Barack Obama’s administration to reduce Chrysler’s debt to help create a partnership with Italy’s Fiat.
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.
NINE CREDITORS
Only nine creditors with less than US$300 million in debt retained their objections by Friday afternoon.
“After a great deal of soul-searching and quite frankly agony, Chrysler’s non-TARP [Troubled Asset Relief Program] 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 “As a result, they have collectively withdrawn their participation in the court case.”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 relief program, a US$700 billion 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.”
‘UNFAIR’
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 hoped to wrap up the court process in 30 days 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 union, with small stakes by the US and Canadian governments, which would contribute some US$10.5 billion 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.
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