Chrysler lenders aim to stop sale

A group of lenders unhappy with the reconstruction of Chrysler - in Chapter 11 bankruptcy protection - has asked a New York court to halt the process.

The US government is backing a plan to sell most Chrysler assets to a new entity led by Italian carmaker Fiat.

But a group of 20 lenders, including hedge funds, want the deal blocked.

Lawyers representing the group, who have also asked for their identities to be kept secret, said the plan would go against normal bankruptcy principles.

Chrysler has asked for permission for a quick sale of most of its assets to a new company held by Italy's Fiat , a United Auto Workers union healthcare trust and the US and Canadian governments.

'Illegal plan'

The group of lenders says the proposed procedures are not legitimate and do not maximise the sale price of the assets.

They have also previously said Chrysler's proposed plan "inverts" the usual priority scheme, whereby senior secured creditors are paid in full first, followed by junior lenders, administrative claims, unsecured lenders and equity holders.

Creditors object to the way the restructuring benefits the United Auto Workers union, which is an unsecured creditor, for the $10.6bn Chrysler owes to its retiree healthcare fund.

BANKRUPTCY PROTECTION

• A key form of US bankruptcy protection is called Chapter 11
• It gives US businesses time to rearrange their finances while continuing to trade, protected from their creditors
• After filing, it is up to the judge to decide who gets paid and how much, balancing the interests of all parties
• The judge holds hearings where all the parties give their views
• His ruling can be appealed

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In addition, they say the anonymity request is because they feel they are unfairly becoming the focus for a political backlash.

When President Barack Obama unveiled the proposed Chrysler bankruptcy last week he called the lender group - who hold more than $300m of secured Chrysler debt - "speculators."

Michigan Governor Jennifer Granholm has described the group's members as "greedy hedge funds," and Representative John Dingell, a Michigan Democrat, has labelled them as "vultures."

In a court filing the lender group said some of their members have received death threats.

The group has urged the court to prevent the sale or substantially change it.

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