The non TARP lenders are fighting back.
May 5 (Bloomberg) -- Chrysler LLC’s plan to auction most of its assets to an entity managed by Fiat SpA is unfair because it prevents creditors from using their claims to make a non-cash bid, a group of secured lenders told a bankruptcy judge.
The group, calling itself Chrysler’s non-TARP lenders, in reference to the Troubled Assets Relief Program, said the proposed auction chills bids from other parties, and would prevent a so-called “credit bid” from its group.
Under a credit bid, parties use debt to buy a company. The group also seeks to block the proposed sale to an alliance led by Fiat, as well as a request by the U.S. automaker for approval of a $4.5 billion Treasury loan to finance the reorganization.
“The proposed sale is not an arms’ length bargain but rather is tainted by government domination and control,” the group said in court documents. They said in a footnote that a requirement that any competing bid put down 10 percent of the purchase price in cash “appears designed specifically,” to prevent the non-TARP group from making a credit bid for the company using the full amount of their secured claim.
The group also objected to rules that would require all competing bids be subject to the same terms as the proposed transaction with the government and Fiat. Because bids need to be made in a week under the proposed timeline, there isn’t enough time for parties to make due diligence required for a competing bid.
The non-TARP group asked U.S. Bankruptcy Judge Arthur Gonzalez not to reveal the identities of its members, even after the judge asked yesterday that they do so. A lawyer for the group, Thomas Lauria, has said members who have been identified have received death threats.
In their request, filed today in Manhattan court, they said some members joined the group only with the promise of anonymity, and would leave if they were forced to reveal their identities.
“Denial of this relief will force several of these lenders to surrender their legal rights and agree to the government’s illegal plan,” lawyers for the group wrote. The request alleges that the U.S. government is subverting federal bankruptcy law through forcing lenders to agree to a reorganization that repays unsecured creditors ahead of some secured creditors.
A call to one of Lauria’s partners, Gerard Uzzi, wasn’t immediately returned.
The group has pitted itself against secured lenders that agreed to the Fiat deal, including JPMorgan Chase & Co., Citigroup Inc., Morgan Stanley and Goldman Sachs Group Inc., saying they had conflicts of interest because they had also accepted TARP funds, the group said.
The secured lenders that back the sale have about 90 percent of a $6.9 billion Chrysler loan that the government wants to slash to $2 billion, according to Peter Pantaleo, an attorney for JPMorgan Chase.
The four largest banks hold $4.83 billion of the debt, or about 70 percent, while the smaller lenders that have signed onto the cash offer have $1.41 billion and the dissenting group holds $666 million, a person familiar with the holdings said. lenders would be revealed “promptly.”
Some of the dissenting lenders have already been identified, including OppenheimerFunds Inc., Perella Weinberg Capital Management LP’s Xerion hedge fund and Stairway Capital Advisors. Perella withdrew its objection last week.
The new company would be owned by the United Auto Workers, Fiat, the U.S. Treasury and the Canadian government, Chrysler has said. Fiat’s 20 percent stake could be increased to 35 percent if the company meets certain milestones, the company has said.
Bankrupt companies in which lenders have proposed credit bids as a way to reorganize include Lenox Group Inc., a china and gift maker. A credit bid was also used in the bankruptcy of the Tropicana casino in Atlantic City, New Jersey. Investor Carl Icahn and other investors made a $200 million credit bid for the company, subject to competing offers.
The case is In re. Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)