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Published: Friday, 5/8/2009

Group drops fight against Chrysler restructuring plans

ASSOCIATED PRESS

NEW YORK The group of dissident Chrysler bond holders challenging Chrysler LLC's government-backed restructuring plans, said Friday that it is dropping its court fight.

Geoffrey Gwin, principal of the Group G Capital Partners LLC hedge funds, said that after weighing the obstacles ahead and along with the opposition they had faced before, the group's five remaining members realized that they couldn't mount an effective legal challenge.

"We're still opposing this and not signing the consents, but the active fight has been more challenging," Gwin said. "Everybody's going along with it."

Case & White LLP, the law firm representing the bond holders group, did not immediately return calls for comment.

Earlier this week, the group's members said in a court filing that their nine funds represented $295 million, or just four percent, of Chrysler LLC's total secured debt of $6.9 billion. Previous estimates had pegged the group at 20 members with about $1 billion in debt.

The dissolution of the group is expected to speed the proposed sale of the bulk of Chrysler's assets to Italy-based Fiat Group SpA and make it easier for the Auburn Hills, Mich.-based automaker to exit from Chapter 11 bankruptcy protection within its goal of 30 to 60 days.

In the days leading up to Chrysler's bankruptcy filing, four banks holding 70 percent of Chrysler's secured debt agreed to a deal that would allow them to recoup only about one-third of the original face value of their investments.

But the dissident lenders said the deal was unfair and put the needs of other groups, such as the United Auto Workers union, ahead of their own. Case & White attorneys threatened to block the sale and argued in court against giving Chrysler access to $4.5 billion in government-supplied bankruptcy financing as well as the proposed sale procedures.

Both motions were ultimately approved by U.S. Judge Arthur Gonzales despite the objections.

Earlier Friday, OppenheimerFunds Inc. and Stairway Capital Management, both former members of a steering committee composed of seven Chrysler lenders, released statements saying that they were dropping out of the group because it had gotten too small.

"Given the reduced number of senior creditors willing to continue to pursue an alternative to the federal automotive taskforce's proposed settlement, OppenheimerFunds has determined that the senior creditors can no longer reasonably expect to increase the recovery rate on the debt they hold by opposing the taskforce's restructuring plan," OppenheimerFunds said in announcing its withdrawal.

In its statement, Stairway maintained that it only pushed for "fair and equitable" treatment for its investors and lashed out against the Obama administration for brushing aside the needs of secured debt holders.

"As American taxpayers, we appreciate the unprecedented efforts taken by the current administration to stabilize the economy and the auto sector; but as fiduciaries to our investors we take exception to being compelled, as Chrysler senior secured lenders, to unfairly shoulder the burden relative to various junior creditors," Stairway said.

Messages seeking comment were left for Chrysler and Treasury Department spokeswomen. Messages were also left for representatives of the other group members Princeton, N.J.-based Foxhill Opportunity Master Fund LP and Schultze Asset Management LLC in Purchase, N.Y.



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