D-day looms for troubled Chrysler

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(China Daily)
Updated: 2009-04-30 07:51

Chrysler LLC's biggest lenders and the US government reached a breakthrough framework deal to cut the automakers' debt by $6.9 billion, but bankruptcy still loomed as a strong possibility, officials said yesterday.

The near-term future of the American icon hinged on several parts coming together before tomorrow's US government deadline to prove that the company can be viable again.

"We don't want to prejudge the outcome. There is still someway to go in the negotiations, so I would not rule anything in or out," White House spokesman Robert Gibbs said after the administration confirmed the deal with most of Chrysler's primary debtholders.

Chrysler employs more than 40,000 factory and salaried employees. The company has been racing to overhaul its cost structure and secure the lone option the Obama administration believes is workable, an alliance with Italy's Fiat SpA.

Fiat's CEO Sergio Marchionne was quoted by the president of the Canadian Auto Workers (CAW) Tuesday as saying Chrysler would likely enter Chapter 11 bankruptcy for a period.

US officials, including Senator Carl Levin of Michigan, told Reuters that a bankruptcy filing, if needed, would be launched with survival in mind.

"If they do go into bankruptcy, it would really be in and out," Levin said in Washington.

Brian Johnson, an analyst with Barclays Capital, said it was becoming "increasingly clear that Chrysler will be restructured and avoid liquidation".

The deal reached with major banks late on Monday would wipe out $6.9 billion in Chrysler debt in exchange for $2 billion in cash but no equity in a new company, according to the source.

Chrysler is privately controlled by Cerberus Capital Management.

Further details on the high-stakes Chrysler debt restructuring deal were not immediately available. Chrysler declined to comment and representatives for the lenders could not be reached for comment.

US Representative Gary Peters, whose Michigan congressional district is home to Chrysler's headquarters, urged the debt holders to accept the deal. "The remaining debt holders should understand that this deal is better than what they could expect in bankruptcy," he said.

The committee of Chrysler's lenders includes JPMorgan Chase & Co, Goldman Sachs Group Inc, Morgan Stanley and Citigroup Inc.

The development with lenders came after a weekend agreement between Chrysler and the United Auto Workers (UAW) to modify the union's labor contract and reduce the amount of money Chrysler would need to contribute to a retiree healthcare trust.

The UAW would end up owning 55 percent of the automaker under the concessionary contract. The CAW ratified a deal with Chrysler last weekend.

Fiat would eventually own 35 percent of Chrysler stock, according to a UAW document given to Chrysler workers.

Fiat's deal with Chrysler would be decided close to the deadline, Fiat Vice-Chairman John Elkann said on Tuesday.

Reuters

(China Daily 04/30/2009 page16)