Chrysler Chap. 11 May Impact GM Debt Deal

Updated from 2:53 p.m. EDT

Chrysler filed for Chapter 11 bankruptcy protection in a New York court on Thursday, a move President Barack Obama said was necessary because a small group of investors and hedge funds would not go along with a deal to save the iconic automaker.

Obama said the small group was "hoping that everybody else would make sacrifices and they would have to make none. Some demanded twice the returns that other investors were getting.

"I don't stand with them," he said. Late Thursday, one of the creditors changed its mind and agreed to go along with the deal.

Obama's statement seemed likely to increase pressure on General Motors(GM Quote) bondholders who have been unwilling to go along with the deal the troubled automaker is proposing. GM faces a June 1 deadline to get agreements from debt holders or faces bankruptcy itself.

However, a spokesman for the Ad Hoc Committee of General Motors Bondholders, which holds about 20% of GM's $27 billion in unsecured debt, said Thursday the cases have little in common. The committee "views these as two entirely separate cases," said Nevin Reilly. "Chrysler has a unique set of circumstances."

In a prepared statement, the ad hoc committee said it supports a plan to allocate GM equity on a pro rata basis to the retiree health care trust fund and to bondholders. The bondholders would then own 58% of GM. The Voluntary Employee Beneficiary Association retiree health care trust administered by the United Auto Workers owns 41%. Current shareholders would own 1% and the federal government would not be involved in ownership, instead retaining its $20 billion in loans.