AP Sources: New offer made to Chrysler lenders
NEW YORK — The Treasury Department has made a new offer to Chrysler LLC’s lenders, asking banks and hedge funds that hold $6.9 billion in debt to forgive $5.4 billion and take a 5 percent stake in a Chrysler-Fiat alliance, according to two people familiar with the matter.
The offer was made to the group late Tuesday, these people said. The people asked not to be named because the negotiations are private.
The Treasury Department’s proposal is in response to the lenders’ offer earlier this week to forgive $4.5 billion in Chrysler debt in exchange for a 40-percent stake in the alliance. An administration official confirmed the offer. A Chrysler spokeswoman declined to comment.
The Treasury is negotiating with lenders as Chrysler races to meet a government-imposed April 30 deadline to swap debt for equity, cut labor costs and negotiate an alliance with Italy’s Fiat Group SpA.
The Auburn Hills, Mich., automaker is living on $4 billion in federal loans and could get another $500 million in working capital to survive through April. But without massive restructuring and a deal with Italian automaker Fiat SpA, Chrysler won’t get any more aid, government officials have said.
The Obama administration is offering an additional $6 billion to Chrysler if it meets the April 30 deadline. If it fails, government aid will end and Chrysler likely faces liquidation.
On Thursday, Fiat Chief Executive Sergio Marchionne said he remains committed to a deal with Chrysler, though he said he could not assess the liklihood that the deal with go through. He also reiterated that Fiat will not put in cash of its own for the deal. Chrysler’s creditors have asked Fiat to put in $1 billion.
“We continue to make progress in terms of the alliance,” Marchionne told investors during a conference call to discuss the Turin-based company’s first-quarter results. “We have spent a significant amount of time with people from Chrysler and with the U.S. Treasury finalizing this transaction.”
Fiat is offering technology in return for 20 percent of Chrysler. The Italian automaker on Thursday reported a first-quarter loss of euro410 million ($531 million).
The equity stake being sought by Chrysler’s lenders would go to first-lien lenders including Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley and several smaller banks, plus some hedge funds. Chrysler has about 45 such lenders who would be first in line to get money if the company’s assets were liquidated.
Including the secured debt and government loans, Chrysler owes about $23.5 billion, including $10.6 billion to a United Auto Workers trust fund that will take over retiree health care costs starting next year. It also owes $1 billion each to its owners, Cerberus Capital Management LP and Daimler AG.
The company is negotiating with the UAW to take equity for part of the trust fund obligation, as well as other concessions. But bankruptcy experts have said secured debtholders won’t likely settle for pennies on the dollar because their loans are secured by Chrysler’s physical assets, and because they likely purchased credit default insurance that would repay them if Chrysler defaults.
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AP Auto Writer Kimberly S. Johnson contributed to this report from Detroit.
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