Friday, May 1, 2009

Yale, Halliburton, Gates Foundation Listed as Chrysler Lenders

Chrysler LLC’s secured lenders included Yale University, Oaktree Capital Management and assets managed for the University of Kentucky, Halliburton Co., Kraft Foods Master Retirement and the Bill and Melinda Gates Foundation, a court filing in the carmaker’s bankruptcy shows.

Chrysler, the nation’s third-largest automaker, filed for Chapter 11 protection after a group of 20 Chrysler secured lenders calling itself the “Committee of Chrysler Non-Tarp Lenders” rejected an offer by the government that would have paid them $2.25 billion on $6.9 billion of debt, or 33 cents on the dollar.

The government plans to ask the bankruptcy judge to let it pay the creditors in that group $2 billion, or 29 cents on the dollar, to end their claims.

“A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout,” President Barack Obama said April 30 in Washington before Chrysler’s bankruptcy filing.

The list of more than 100 secured lenders, filed in the U.S. Bankruptcy Court in Manhattan, includes those that initially declined the government offer as well as others, including the U.S. Treasury.

Dissident Group

Some investors, including OppenheimerFunds Inc. and Perella Weinberg Capital Management LP’s Xerion hedge fund, bought the debt of the automaker before last July. On June 30, Chrysler auto loans were trading at about 49 cents on the dollar. Xerion, run by Daniel Arbess and OppenheimerFunds, both based in New York, and Stairway Capital Advisors, based in Uniondale, New York, were all part of the group that declined the government’s offer, as were Los Angeles-based TCW Group Inc. and Schultze Asset Management LLC of Purchase, New York.

The dissidents labeled themselves “non-TARP lenders” to highlight their willingness to oppose the Treasury plan, unlike Chrysler’s largest creditors, JPMorgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley and Citigroup Inc., which have all received money from the taxpayer supported Troubled Assets Relief Program, or TARP.

Other firms, including New York-based hedge funds Elliott Management Corp. and York Capital Management LP, supported the government’s deal.

Some buyers of the company’s loans would still make money at 29 cents on the dollar. In March, the debt traded as low as 13 cents.

Perella and Xerion issued a statement after the president’s comments saying they accepted the government offer and would attempt to persuade other lenders to do the same.

Perella Statement

“We believe that this is in the best interests of all Chrysler stakeholders, and our own investors and partners,” the Perella statement said. “We are working with other non-TARP Lenders to encourage broad participation in the settlement.”

Goldman Sachs Group Inc. was among the first of Chrysler’s underwriters to try to get the loans off its books. The investment bank sold about $500 million of Chrysler loans in April 2008 at 63 cents on the dollar, almost 30 cents lower than where other actively traded loans were selling. At that price, the loans would yield more than 25 percent if held for four years.

“People bought the debt because the recovery on bank loans has been high,” said Steven Persky, co-founder of Dalton Investments LLC, a Los Angeles-based hedge fund that trades distressed debt.

Pension Funds

Columbus, Indiana-based Reams Asset Management bought Chrysler loans on behalf of 37 clients, including public pension funds in Seattle, Sonoma County, California and Baltimore County, Maryland. Reams also invested money for the Bill & Melinda Gates Foundation and the University of Kentucky, according to the court document.

Calls and messages to Reams executives, including Robert Crider, managing director, weren’t returned.

Diana Gabriel, a spokeswoman for Halliburton, said it held one Chrysler bond valued at $1.6 million in its $4.5 billion of pension assets.

Deutsche Bank AG, which also appeared on the list of lenders, said it only held loans made to Chrysler’s financing arm, which traded at 71.5 cents on the dollar on April 30, compared with 27.5 for the carmaker’s loans.

“Our risk to Chrysler finance is strongly hedged and structured,” said spokesman Ted Meyer. “Our net loss for the firm is negligible.”

Executives at the other lenders declined to comment or didn’t return calls seeking a comment.

The case is In re. Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan).