Friday, May 8, 2009

The Rattner Doctrine Has Won

Dealbook has announced that the Chrysler dissident group will likely disband after Stairway Capital and Oppenheimer Funds folded under pressure.

A group of Chrysler creditors opposing the carmaker’s reorganization is likely to disband after two more investment firms withdrew from its membership, a person briefed on the matter told DealBook on Friday.

The withdrawals of OppenheimerFunds and Stairway Capital Management will likely drop the group, calling itself the Committee of Non-TARP Lenders, below 5 percent of Chrysler’s $6.9 billion in secured debt, this person said. That would almost certainly eliminate the group’s standing in federal bankruptcy court.

Ever since the group made public last week, its membership has shrunken by the day as it faced public criticism from President Obama and others. That continued withdrawal of firms led Oppenheimer and Stairway to conclude that they could not succeed in opposing the Chrysler reorganization plan in court, the two firms said in separate statements.

By Tuesday, the group’s holdings had fallen to about $300 million. And by ednesday, when the committee made a court-mandated disclosure of its roster, that figure had fallen to $295 million.

Oppenheimer said Friday that “senior creditors can no longer reasonably expect to increase the recovery rate on the debt they hold by opposing the Taskforce’s restructuring plan.”

Stairway also cited the shrinking roster of the dissident creditors as a reason to publicly withdraw its opposition to the Chrysler reorganization plan through the court process. “The fact simply is, however, our group has become too small to have a voice within the bankruptcy,” the firm said in its own statement.

Congratulation, Steve. Threats, together with forced public disclosure have worked like a charm.
As secured creditors have now set a precedent for acquiescing to demands for giving up on Absolute Priority, not to mention a recovery of whatever a stalking horse bidder and Rattner deem appropriate, secured lenders in any other companies that have a UAW presence will now not be able to get one night's sleep and will likely sell their holdings far in advance of even a whiff of bankruptcy.

As to whether this impacts the prospect of a GM bankruptcy is not know. The dynamics there are more troubling, although the very same strongarming tactics will likely prevail in the end.

This is merely yet another milestone in the collapse of contractual rights in the American system. Sphere: Related Content
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