Chrysler LLC will be reborn through the signing of an alliance with Fiat SpA and a renewed pledge of financial support from the Obama administration.
The only question remaining: whether it happens inside or outside of a bankruptcy court. As of Wednesday evening, three of Chrysler’s 46 secured debt holders were holding out against a proposed $2.25-billion settlement of the $6.9-billion debt. The Associated Press reported early today that talks had broken off. The three were under intense pressure from the White House and Michigan’s congressional delegation to reach a deal, people familiar with the talks said.
President Barack Obama addressed government ownership of car companies at a news conference Wednesday. “I don’t think we should micromanage,” he said. “But like any investor, the American taxpayer has a right to scrutinize what’s being proposed and make sure that the money’s not being thrown down a drain.”
Obama had penciled in an announcement regarding Chrysler and Fiat for today, but the timing and content would depend on the final scope of a deal. An administration official said the task force always anticipated the talks could extend until the deadline of midnight tonight.
Praising Fiat for its role, Obama said, “We’re hoping that you can get a merger where the taxpayers will put in some money to sweeten the deal, but ultimately the goal is we get out of the business of building cars, and Chrysler goes and starts creating the cars that consumers want.”
The Obama administration increasingly says that with backing from Fiat, the UAW and major debtors, it could put Chrysler through a surgical bankruptcy of as little as 30 days to win the concessions it had not yet won from holdouts among debtors and possibly dealers.
As with General Motors Corp., the administration would use a section of bankruptcy law allowing it to craft a new automaker by buying pieces of the current one, leaving unwanted debt and a few assets to be fought over in bankruptcy court.
GM has a deadline of June 1 to complete a $27-billion debt reduction, and the company warned this week it could file for bankruptcy sooner than that if the offer fell far short. Detroit Free Press
Talks between Chrysler LLC’s lenders and the Treasury Department to reduce the automaker’s secured debt and keep it out of bankruptcy protection broke down early this morning, a person familiar with the talks said.
Four banks with 70 percent of Chrysler’s $6.9 billion debt had agreed to erase it for $2 billion, or less than 30 cents for each dollar held. That left Chrysler’s fate in the hands of about 40 hedge funds with about 30 percent of the debt.
All of the people spoke on condition of anonymity because the negotiations were private.
If it files for bankruptcy, Chrysler would continue operating and Fiat would still sign on as a partner on Thursday, the people said. The government already has promised to back Chrysler’s warranties in an effort to allay customers’ fears that the automaker wouldn’t be around to honor them. The Associated Press
Barring a new round of talks with creditors today, Chrysler will be forced to file for bankruptcy. But administration officials have said there are other liabilities that Chrysler may want to discharge in bankruptcy, including some dealer agreements and lawsuits.
“After a month of tireless negotiations, the administration went into yesterday afternoon with the full support of Chrysler’s key stakeholders, including the UAW and the largest creditors. That support remains,” the administration official said.
An administration official told on Wednesday that there was a “97 percent” chance that Chrysler would file for bankruptcy, while congressional aides said that some stubborn holdouts among the 46 lenders made bankruptcy all but certain. The Detroit News
