Bond holders drop their fight against Chrysler plan

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

The dissolution of the group — at least on an official basis — clears away the largest obstacle standing in the way of Chrysler's plans to sell the bulk of its assets to Italy's Fiat Group and could pave the way for the quick exit from bankruptcy protection that the automaker and the federal government desire.

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

But that doesn't mean the deal reached before Chrysler's Chapter 11 filing — which would exchange the automaker's total of $6.9 billion in secured debt for $2 billion — has the group's support.

"We're still opposing this and not signing the consents, but the active fight has been more challenging," Gwin said.

Thomas Lauria, the group's lead attorney, said in a statement that the lenders he represented, and others, felt pressure from President Obama's administration to accept the deal.

They eventually came to the conclusion that there weren't enough of them to "withstand the enormous pressure and machinery of the U.S. government," he said.

Earlier this week, the group's members said in a court filing that their nine funds represented $295 million, or just 4%, of Chrysler's total secured debt. Previous estimates had pegged the group at 20 members with about $1 billion in debt.

In the days leading up to Chrysler's bankruptcy filing, four banks holding 70% of Chrysler's secured debt agreed to a deal that would allow them to recoup about one-third 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. Attorneys for the group 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.