Following the withdrawal of the dissident lenders' deposition, the U.S. Bankruptcy Court in New York managing the Chapter 11 restructuring procedure of Chrysler LLC has entered an order approving a process for the sale of substantially all of the company's assets.

The secured lenders had shrank from the consortium of over 40 members, representing US$6.9 billion in debt before the April 30 deadline, to a handful that were owed less that US$300 million, and after the judge dismissed their request to keep their names secret, and with defections coming from their ranks, they withdrew their action yesterday. "After a great deal of soul-searching and, quite frankly, agony, they concluded they just don’t have critical mass to withstand the enormous pressure and machinery of the U.S. government,” Tom Lauria of White & Case, the group’s attorney, said yesterday in an interview.

The group of dissident debt holders called themselves the "non TARP" lenders in an ironic reference to the fact that the lenders' key players, including JP Morgan Chase, Citigroup and Goldman Sachs, who all settled before the April 30 deadline for the US$2 billion payout that was on offer, had already received funds from the U.S. Treasury Department's Troubled Asset Relief Program (TARP). The group contesting the proposals for Chrysler was led by Oppenheimer Funds, the only mutual fund manager in the group, and Stairway Capital, both of which said yesterday that they would withdraw their action. Other members of the "non-TARP" group include Schultze Asset Management LLC, Group G Capital Partners LLC and Foxhill Opportunity Master Fund.

Chrysler argued in its motions to the court that it is imperative that the process be completed expeditiously in order to secure the maximum value for Chrysler’s stakeholders through the Chapter 11 process. Given the stress on all aspects of the automotive industry and the current idling of Chrysler’s manufacturing facilities, Chrysler said that key relationships with suppliers, dealers, and other business partners cannot be preserved if the sale process is not concluded quickly.

In addition, Chrysler noted that substantial new financial commitments from the U.S. and Canadian governments require the consummation of a transaction with Fiat within 60 days and make DIP financing available for only that period. The recently announced agreements with the UAW and CAW providing for modifications to the collective bargaining agreement for active employees and for a new schedule of contributions to a VEBA that will provide retiree medical benefits is also conditioned on the expeditious consummation of the Fiat transaction. While Chrysler has already conducted discussions with Nissan, GM, Volkswagen, Tata motors, Magna, GAZ, Hyundai, Honda and Toyota and others over an extended period of time, these discussions have not produced any viable alternative to the proposed alliance with Fiat.

Nevertheless, Chrysler provided in its filings for an orderly and fair process, approved by the Court, that will confirm that the Fiat transaction represents the best and highest bid for Chrysler’s assets, or promptly identify any other higher and better alternatives. To be successful, an alternative bidder would have to surpass the value of the terms of the agreement with Fiat.

As part of this process, a Sale Notice will be circulated widely, and notice will also be published in major newspapers to provide opportunity for any interested party to emerge. The Court has set May 20 as the deadline for the submission of bids; May 26 as the deadline for the notice of designation of lead bidder; and May 27, 2009 as the date for the Sale Hearing to consider the approval of the proposed sale.