Chrysler Creditors Give Up Challenge

By NEIL KING JR. and SERENA NG A group of Chrysler LLC lenders who opposed the government's restructuring plan for the auto maker agreed to abandon the fight after deciding that the financial and political costs were too high. The creditors withdrew their legal protest on Friday after two of the larger funds, OppenheimerFunds and Stairway Capital, left the dissident group. The two funds also indicated they would accept the outcome of the auto maker's bankruptcy-court proceedings. Chrysler Passes Hurdles to Bankruptcy 2:50 Two lenders fighting the sale of Chrysler to Fiat have backed down, paving the way for Chrysler to move more quickly through bankrupcty court, WSJ's Alex Kellogg explains. The collapse of the organized opposition removes the final significant hurdle to the Obama administration's efforts to get Chrysler reorganized swiftly in Chapter 11 bankruptcy court. The company could now emerge from the process as early as next month in a new alliance with Italy's Fiat SpA. The five firms represented the last of a group of about 20 hedge and distressed-debt funds that refused last week to go along with an agreement, forged between the U.S. Treasury Department and four large banks, to take a $2 billion cash payout for the $6.9 billion in secured loans to Chrysler. The group rose in opposition to J.P. Morgan Chase & Co. and other key banks that had received $90 billion in government funding under the Troubled Asset Relief Program, or TAR. The dissident group identified itself as Chrysler's "Non-TARP lenders." "Being such a small group trying to fight the force of the government made [the funds] very uncomfortable," said Thomas E. Lauria, a lawyer with White & Case LLP who was hired in early April to represent the group. "In the end, they just concluded that the political cost to their institutions was too high to bear," he said. The group of five money managers oversaw funds holding a combined $295 million out of the $6.9 billion in Chrysler loans outstanding. Chrysler has 46 secured lenders, and it needs more than half to agree to release their claims over the auto maker's assets so that its restructuring can proceed. More Letter From Chrysler Lender Steinway The lenders argued that the Obama administration's plan for remaking Chrysler was upending decades of established bankruptcy law by trampling their rights as first-lien secured lenders, who typically should be paid ahead of others. The government-led restructuring plan calls for awarding a United Auto Workers union retiree health-care fund and Fiat up to 90% of Chrysler's equity, plus future cash payments to the UAW trust fund, while repaying the lenders 29 cents on the dollar of their original loans to Chrysler. "We have fought for what we believe should be fair and equitable treatment under contract and bankruptcy law," said Stairway Capital in a statement. "However, our group has become too small to have a voice within the bankruptcy." The remaining three firms, Schultze Asset Management LLC, Group G Capital Partners LLC and Foxhill Capital Partners LLC, had insufficient resources to cover legal fees, one person involved in the group said. While agreeing to drop their legal challenge, the funds aren't supporting the debt repayment offer put forward by the Obama administration. "This is not a fight about money; it's a fight about principles and standing up for what's right," said Geoffrey Gwin, principal of Group G Capital. Write to Neil King Jr. at neil.king@wsj.com and Serena Ng at serena.ng@wsj.com