The Noose Tightens On Chrysler

Nine days to go and it looks like any deal to save Chrysler from BK is a long way off. The banks have told the government they won’t write-down the value of their debt nearly as much as the government has requested.

From the WSJ:

Chrysler owes the lenders, which include banks such as Citigroup Inc. and J.P. Morgan Chase& Co., about $6.9 billion. But President Barack Obama and his auto team had demanded that the banks cut that to $1billion, while gaining no equity stake in a restructured Chrysler.

In their five-page counteroffer delivered Monday evening to the Treasury, the lenders said they are prepared to cut Chrysler’s first-lien debt by $2.4 billion, or down to about $4.5 billion, in exchange for a minority equity stake, likely to be 40%, according to people familiar with the offer. The lenders also are demanding that Fiat pour some capital into Chrysler in exchange for whatever equity stake it would gain. That could be a source of conflict with the Italian auto maker, which has said it won’t put cash in the deal and instead give Chrysler only technology.

In making their case for a significantly smaller sacrifice than what the government wants, the lenders have argued that their fiduciary duty to their own shareholders and investors requires them to recoup as much as possible from Chrysler. The lenders have told Treasury officials that, if necessary, they could recover at least 65% of their loans to the company if it is liquidated in bankruptcy.

Chrysler has been given a deadline of April 30 to resolve the negotiations. Given that it’s still a private company it remains to be seen what happens at that point in time. Does the government just say not one more dime and join the rest of the creditors in forcing a bankruptcy or does it blink? In as much as there are so many players with misaligned interests here — the company, unions, U.S. government, Fiat, creditors — it’s really doubtful that compromise is going to occur.

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