May 7, 2009 at 11:07 am

Chrysler lenders agree to deal with Treasury plan

Agreement likely will shore up automaker toward speedy exit from bankruptcy court

The vast majority of Chrysler LLC's secured lenders -- including a Michigan public retirees' pension fund, the University of Kentucky and the Bill and Melinda Gates Foundation -- agreed to a deal with the Treasury Department to help Chrysler survive.

The holdout creditors own $295 million of the automaker's $6.9 billion in distressed debt -- much less than previously disclosed, bolstering Chrysler's case for a speedy exit from bankruptcy.

The committee representing the objecting creditors disclosed their identities Wednesday, as required, in U.S. Bankruptcy Court. They include Stairway Capital Management, Oppenheimer Senior Floating Rate Fund and Foxhill Opportunity Master Fund.

The law firm for the creditors, White & Case, said other lenders "have elected for various reasons to withdraw" from the group of objectors "as a consequence of concerns stemming from publicity of these Chapter 11 cases."

The disclosure that the objecting creditors hold slightly more than 4 percent of the debt may make it easier for Chrysler to quickly complete a sale of its good assets, allowing it to exit bankruptcy in 60 days.

The law firm said none of the objectors still in the case hold "credit default swaps," which would allow them to be repaid in full if Chrysler liquidated.

Thomas Lauria, a lawyer for the debtors, said some death threats against the creditors had been reported to police, and noted that the holdouts were denounced by President Barack Obama and pilloried by Michigan politicians. U.S. Bankruptcy Judge Arthur Gonzalez Tuesday rejected a request to keep the names secret, saying no evidence had been presented to support it.

Gonzalez also approved bidding procedures Tuesday for a sale of Chrysler's assets, giving potential buyers until May 20 to submit their bids.

"While there is still a lot of work to do, this development gives us further confidence that Chrysler's bankruptcy will be quick and orderly," White House spokesman Robert Gibbs said, praising the speedy progress.

U.S. Treasury officials won agreement from Chrysler's four major bank lenders and most of the smaller lenders to swap the $6.9 billion in first-tier secured debt in exchange for $2 billion in cash.

Among those that agreed to swap debt were the Bill and Melinda Gates Foundation, the University of Kentucky, and Yale University, as a well as a company overseeing Michigan pensions.

The Municipal Employment Retirement System of Michigan, or MERS, oversees pensions for 700 Michigan cities covering about 75,000 retirees. MERS' $4.7 billion investment portfolio includes some distressed debt.

MERS purchased $3.4 million in Chrysler debt in August 2008 at 43 cents on the dollar, and agreed to sell it under the Treasury deal for about a $1 million loss, said spokeswoman Lisa Brewer.

Others that hold Chrysler's secured debt and agreed to the swap are Indiana University, the Children's Hospital of Philadelphia, Santa Barbara County Employee Retirement fund, the city of Seattle's retirement fund and the Los Angeles Fire and Police retirement fund. The list includes more than 100 funds.

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