May 11, 2009 6:21 PM
White & Case's Tom Lauria Reflects on Non-TARP Lenders Crazy Chrysler Week
Posted by Zach Lowe
Thomas Lauria of White & Case has never experienced anything quite like his time representing the group of so-called non-TARP lenders who rejected the government's offer to exchange billions in Chrysler debt for 29 cents on the dollar. The Obama administration--which made the offer and required unanimous acceptance to keep Chrysler out of bankruptcy court--blamed the group for forcing Chrysler into Chapter 11. After the filing, the group sought to block the sale of Chrysler's most viable assets and the creation of a new company managed by Fiat, arguing that unsecured lenders, such as the auto workers union, would get repaid before the secured lenders--a reversal of normal bankruptcy procedures. The group's ranks dwindled under the pressure of public exposure. On Friday, nine remaining non-TARP lenders gave up that fight.
The Am Law Daily spoke to Lauria Monday about the last few weeks, the possibility of a General Motors bankruptcy, and other related topics.
Hi, Tom. Tell us how you got involved in this to begin with?
We had a very low-level involvement with one client, Perella Weinberg Partners, who called us in November and said, "Look, we see what's going on here. Can you help us keep an eye on this?" After that, it was pretty quiet until the end of March, when the Obama administration rejected Chrysler's reorganization plan and set the end of April as a deadline to have a new deal in place.
Did you have much interaction with the four major banks--the so-called TARP lenders--that held about 70 percent of Chrysler's $6.9 billion in debt?
Yes. On about April 2 or 3, we reached out to Simpson Thacher & Bartlett [ed. note: Simpson was counsel to JPMorgan Chase, the lead bank lender] and told them we were representing a group of non-TARP lenders who were concerned about the steering committee the banks had set up. All four banks had seats on that committee. Only one non-TARP lender did. We wanted a bigger role. To our surprise, they agreed and put three more non-TARP lenders to make it 4-4.
Was there an offer on the table from the government at the time?
Yes, the government was offering $1 billion in exchange for the full debt.
What was the committee's first counteroffer?
We settled on a proposal that would have limited the debt to $4.5 billion in exchange for $1 billion in preferred stock and 40 percent of the new company's common stock.
So at this point, in early April, you and the Simpson team and the TARP lenders are working together?
Yes, at least in form. I mean, we had a first lien on the assets. We saw the game plan was to reward unsecured claims first, and we said, "You can't do that. It's illegal. How could this possibly be?"
How quickly did the government reject that offer?
The same day we made it. They said there was no chance.
What was the full steering committee's final offer?
On Friday [April 24] the full committee made an offer to [reduce the debt] to $3.75 billion in exchange for 40 percent of the common stock. I'd call that a compromise.
And then over that weekend, everything went quiet. We were ready and braced for anything. On Monday, it was still quiet. On Tuesday, our group got on the phone. Nobody was returning our calls. While we're on the phone, a wire report hits saying JPMorgan and Citigroup have agreed to settle for $2 billion.
So now the TARP lenders have clearly split off from your group.
Now we were on our own. On Wednesday [April 29], we made a proposal that the government give the non-TARP lenders 50 cents on the dollar. The TARP lenders may have been willing to take 29 cents, but we were not. The next morning Chrysler filed for bankruptcy, and you can imagine my surprise when President Obama is on television saying we're the bad guys, we're unwilling to compromise and "I don't stand with them." We were trying to negotiate and they stiff-armed us.
Over the following weekend, you told a reporter that Steven Rattner (head of Obama's auto task force) threatened the non-TARP group--specifically Perella Weinberg--that the administration would publicly "embarrass" the firm if it continued to hold out. Rattner and Perella denied the threat happened. Do you stand by your comments?
I'm not going to comment on that.
Why did the group eventually decide to withdraw its objection in bankruptcy court last Friday?
When [Judge Arthur Gonzalez] denied our motion to file the motion under seal and keep secret the identities of the firms, that was our Waterloo. It was like letting the air out of the balloon. I mean, these people were getting death threats.
After that, we were down to nine lenders who held $300 million in Chrysler debt. We had started with a group that held $1 billion and another group that was clearly sympathetic to us that held another billion. We had just lost critical mass.
What would you have done had you continued on? Objected to the sale of the assets?
Yes. We were only getting started. We had a whole pile of papers we were going to file at the end of last week before we pulled off. We were going to file an objection to the sale, but not until May 19th. That was the deadline. In the meantime, we had some other issues we were concerned about and some other motions we were going to file.
What were those?
I don't know that I want those reported now. They could become relevant in the next automaker bankruptcy.
Do you already have clients with General Motors debt?
We've been talking to people who hold positions in GM and everybody is trying to figure out what to do.
White & Case's Thomas Lauria: Lawyer for the Holdout Lenders
The Am Law Daily, 5/1/2009
Non-TARP Lenders Not Backing Down
The Am Law Daily, 5/5/09
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