A couple of dissident Chrysler lenders, including the OppenheimerFunds and Stairway Capital, have decided to withdraw their opposition to the Obama administration's debt restructuring plan for the auto maker.
The creditors withdrew their legal protest on Friday, indicating their willingness to cooperate with the auto maker's bankruptcy-court proceedings.
This will enable the administration to get Chrysler reorganised swiftly under the Chapter 11 bankruptcy court.
OppenheimerFunds, a unit of Massachusetts Mutual Life Insurance, and Stairway Capital were among the group of creditors that own a combined $295 million of the Chrysler's $6.9 billion in distressed debt to major financial institutions such as JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs, hedge funds and other Wall Street firms.
With this, the dissident lenders would hold less than 5 per cent of Chrysler's $6.9 billion in secured debt.
Although the loans are backed by company assets such as land, plants and equipment, the deal proposed those lenders to accept $2.25 billion to settle those loans.
"Given the reduced number of senior creditors willing to continue to pursue an alternative to the federal automotive task force'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 task force's restructuring plan," it said in a statement.
The automaker filed for Chapter 11 bankruptcy on 30 April after a group of 20 secured lenders rejected an offer by the US government that would have paid them $2.25 billion for $6.9 billion of debt, or 33 cents on the dollar. Chrysler's 22 US factories with about 26,800 hourly workers have been on idle since 1 May.
US president Barack Obama had criticized the dissidents for refusing to join the Chrysler restructuring process in a government-brokered deal that may take the distressed auto giant to Fiat.
Under the plan, the united auto workers (UAW) will get 55 per cent of the equity in a reorganised Chrysler to cover money it is owed for retiree health care costs. Fiat would get a stake of up to 35 per cent, while the US and Canadian governments would get a 10 per cent stake each in return for their support to the programme.
The company hopes to conclude the reorganisation by 30 June. The carmaker plans to sell useful plants and other assets to a new company controlled by Fiat and the UAW, and give up its old liabilities, including the loans and some plants and dealerships. (See: Chrysler seeks to speed up bankruptcy deal with Fiat).
''After a great deal of soul-searching and, quite frankly agony, Chrysler's non-TARP lenders concluded they just don't have the critical mass to withstand the enormous pressure and machinery of the U.S. government,'' Thomas E Lauria, a partner at the law firm White & Case that represents the group, said in a statement.
"We remain steadfast in our view that there should be significantly more value attained, given a normal course bankruptcy negotiation," Stairway said in a statement. ''The fact simply is, however, our group has become too small to have a voice within the bankruptcy,'' it added.
Earlier, the group lost its first major member, Perella Weinberg Partners, which signed onto the Chrysler plan.
The remaining members of the dissident group were Schultze Asset Management, Group G Capital Partners and Foxhill Capital Partners.