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Five Letters. Starts With A Gr. Rhymes With Bleed.

Over at DealBook, the New York Times' Michael J. de la Merced tells us a little more about those smaller lenders who refused to restructure Chrysler's debt--and why they did it:

Many of the holdout lenders, primarily distressed-debt hedge funds who bought portions of Chrysler’s $6.9 billion of bank debt at a discount, are likely to argue that they have the first claim to the carmaker’s assets that were pledged for those loans, people briefed on the matter told DealBook.

They argue that they would see greater recovery in a liquidation of the car giant, which they contend would yield about 65 cents on the dollar. The most recent plan proposed Wednesday by the Treasury Department and Chrysler’s four main bank lenders--JP Morgan Chase, Citigropu, Morgan Stanley and Goldman Sachs--would have given the creditors about 33 cents on the dollar.

So, just to be clear, the major parties to the Chrysler negotiations had worked out a deal. The two biggest, the unions and the major creditors, agreed to terms that involved quite a bit of pain. But the smaller creditors--hedge funds that bought Chrysler bank debt at steep discounts--are holding out because they figure they'll make more money if the company goes through liquidation.

Guess they didn't get the memo on shared sacrifice.

De la Merced goes on to explain that their position means we're in for a potentially nasty, and very public, court fight over how to settle these claims. Welcome to the land of bankruptcy. 

--Jonathan Cohn