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Chrysler Secured Lenders Will File Secrecy Request, Lawyer Says

Date: Tuesday, May 5, 2009
Author: Christopher Scinta, Tiffany Kary and Mike Ramsey, Bloomberg.com

Chrysler LLC secured lenders who oppose a bankruptcy plan to sell most of the carmaker’s assets to an entity managed by Fiat SpA will ask today that their names be kept secret because some received death threats, their lawyer said.

Lenders that have already been identified include OppenheimerFunds Inc., Perella Weinberg Capital Management LP’s Xerion hedge fund and Stairway Capital Advisors. Perella dropped its objections to the sale last week.

U.S. Bankruptcy Judge Arthur Gonzalez ordered that the company’s so-called non-TARP lenders who object to the sale to Fiat and its government financing reveal their identities by noon today in New York or file a request to submit their identities under seal.

“People that have been identified publicly as holders of that debt have received death threats,” said Thomas Lauria, a lawyer for the group, who said the threats have been reported to the police. The group, distinguishing itself from other Chrysler lenders that have taken money from the U.S. Treasury, derives its name from the government’s Troubled Assets Relief Program.

Lauria said he would file a motion to submit the names under seal.

Last week’s Chrysler bankruptcy filing named 123 secured lenders, without identifying which ones objected to the plan.

The group of non-TARP lenders includes 20 to 30 members, Lauria said yesterday. Some members, in addition to Xerion, have left because things are “too hot,” he said.

The group fluctuates in size based on trading of the debt, Lauria said.

Debt Trading

Chrysler debt is trading at 27 cents to 28 cents on the dollar, according to two people familiar with the trades.

Chrysler has agreement from 62 percent of its secured lenders holding 90 percent of $6.9 billion in loans, a lawyer for the lenders said yesterday in court.

JPMorgan Chase & Co., the largest holder of Chrysler loans, is the administrative agent for the other lenders and collected votes last week of lenders agreeing to a $2 billion cash payment to cover the $6.9 billion in loan claims, said Peter Pantaleo, an attorney for the New York-based bank.

Chrysler won interim approval yesterday to borrow on a $4.5 billion bankruptcy loan from the Treasury, giving the company time and money to complete a planned auction for most of its assets.

Interim Loan

“There isn’t going to be tomorrow if there is no DIP loan today,” Gonzalez said in approving the so-called debtor-in- possession financing.

Chrysler has the right to borrow as much as $1.8 billion of the total on an interim basis, according to court papers. The Auburn Hills, Michigan-based company said it needed the loan or it would be forced to liquidate.

The company is planning to sell most of its assets to a group managed by Fiat of Turin, Italy, unless it receives a higher offer at a court-supervised auction.

Gonzalez scheduled a hearing today on the rules for the auction.

The loan approval came over the objection of the non-TARP lenders group. Lauria told the judge in court that the loan would be a bridge to an illegal sale of assets that would pay lower-ranking creditors more than senior lenders.

Bridge, Pier

“We’re concerned we’re starting construction of a bridge that may turn out to be a pier,” he said, adding the bankruptcy loan was inextricably tied to Chrysler’s proposed sale.

Chrysler’s planned alliance with Fiat would create the world’s sixth-largest carmaker. Chrysler wasn’t able to pursue the merger outside bankruptcy because of opposition by the objecting lenders.

The Fiat offer will be made by an as-yet unnamed entity formed by the Italian automaker, a trust for union workers and the U.S. and Canadian governments. That offer will be the lead bid in an auction.

Chrysler is asking Gonzalez to approve bidding rules for an auction that would require creditor objections to the sale to be submitted by May 11, followed by a May 15 deadline for competing bids. The bankrupt automaker seeks a May 21 hearing to approve the winning bid, according to the court filing.

Under bankruptcy law, offers for bankrupt companies or their assets are generally subject to the possibility of higher bids at a court-supervised auction.

Listed Assets

Chrysler, in its April 30 filings, listed assets of $39.3 billion and liabilities of $55.2 billion, making it the fifth-largest bankruptcy in U.S. history, according to data compiled by Bloomberg News.

Capstone Advisory Group Executive Director Robert Manzo, called by Chrysler as a witness, testified in court yesterday that some of the payments the automaker seeks to authorize will go to union employees at idle plants and to other unsecured creditors.

Chrysler lost $16.8 billion in 2008, according to court filings. The company said it’s averaging a cash burn rate of $1.7 billion a month and said it will lose $4.7 billion this year, according to court papers.

The automaker has said the new company will have assets of $28.5 billion and debt of $26.5 billion. Assets, which are currently $35.4 billion according to Manzo, are projected to grow to $49 billion by 2016, it said.

2012 Profit

The new company’s net income is expected to be $100 million by 2012 and $1.6 billion in 2013, according to court papers, reaching $3 billion by 2016.

The projections were filed April 30 with Manzo’s declaration supporting Chrysler’s request to sell most of its assets to a group including Fiat.

“This analysis shows the clear value advantage of the Fiat alliance over a plausible liquidation approach,” Manzo said in the filing.

The projections depend on “debt forgiveness” of $5.4 billion by secured lenders, with payments of only $1.5 billion, according to the filing. The U.S. Treasury said in its plan filed in court that it would pay secured lenders $2 billion.

The case is In re. Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)

To contact the reporters on this story: Christopher Scinta in U.S. Bankruptcy Court in New York at cscinta@bloomberg.net; Tiffany Kary in U.S. Bankruptcy Court in New York at tkary@bloomberg.net; Mike Ramsey in New York at mramsey6@bloomberg.net.