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Article published April 24, 2009

Feds want Chrysler bankruptcy plan
Treasury reportedly will supply new financing during Chapter 11




DETROIT - The Treasury Department is directing Chrysler to prepare a Chapter 11 bankruptcy filing by next week, people with direct knowledge of the talks said yesterday.

The company faces a deadline of April 30 to come up with a viable business plan supported by its creditors, the United Automobile Workers union, and Fiat, the Italian car company that wants to acquire a stake in Chrysler.

The Obama Administration has told Chrysler it would provide up to $6 billion in new financing, on top of the $4 billion in loans it already has given the company, if Chrysler could complete a deal by Thursday with a cost structure that gives it a chance of survival. The creditors have, so far, balked at the terms suggested by the Treasury Department.

But negotiations have taken a new direction.

Treasury now has an agreement in principle with the UAW, whose members' pensions and retiree health care benefits would be protected in the event of a bankruptcy filing, said the people with knowledge of the discussions, who asked for anonymity because they were not authorized to discuss the case.

Moreover, under this scenario, Fiat would complete its alliance with Chrysler while the company is under bankruptcy protection.

Lloyd Mahaffey, UAW regional director for Ohio, had no comment about the report.

Chrysler employs about 1,800 workers at its Toledo Jeep Assembly complex, with on-site suppliers employing an additional few hundred. The complex makes the Jeep Wrangler and Liberty and the Dodge Nitro sport utility vehicles.

The company has about 1,000 employees at its Toledo Machining Plant in Perrysburg Township. It makes torque converters and steering columns for several vehicles.

Fiat, a company that was struggling earlier this decade, is seeing new opportunities in Detroit's troubles. Its chief executive, Sergio Marchionne, in Washington for talks on the Chrysler deal in recent days, has raised the possibility of also acquiring General Motors' Opel division in meetings with U.S. officials, a top government negotiator said yesterday.

The Chrysler talks, with the deadline looming, are more urgent than any discussions over Opel, particularly over the
$6.9 billion in Chrysler debt.

Despite any plans for a smooth outcome from a Chapter 11 filing, there are risks in bankruptcy. Consumers may avoid Chrysler cars because of worries about their quality, their resale value, or the ease of getting parts for future repairs.

A bankruptcy filing for Chrysler would likely wipe out equity stakeholders, notably Cerberus Capital Management, which took over the carmaker from Daimler in 2007.

Some analysts questioned whether the Treasury's steps to direct Chrysler to prepare for bankruptcy were an effort to pressure the lenders to come to an agreement outside the courts.

"You have to proceed as if it's happening, and in doing so, you may avoid it," said Jeremy Anwyl, a veteran industry analyst and the chief executive of Edmunds.com, a Web site that offers car-buying advice.

The Treasury Department declined to comment. But an administration official who did not want to be named said, "It should surprise no one that the administration is planning on contingencies, but we remain focused on the goal and engaged with all stakeholders to bring Chrysler and Fiat to a working partnership."

Chrysler spokesman Lori McTavish, said, "As we move forward in this process, we believe it's important to keep all options open."

The creditors' claims are backed by most of Chrysler's collateral, including plants, brands, and equipment, and the senior lenders will argue that they have first claim on those assets - even before repayment of the government's debt.

The government and the creditors have been trading offers. The most recent offer, presented Wednesday, would give the company's lenders about 22 cents on the dollar, or $1.5 billion, and a
5 percent equity stake in a reorganized Chrysler.

Earlier this week, a steering committee of the lenders proposed that they receive 65 cents on the dollar, or $4.5 billion, and a 40 percent equity stake.

Treasury is also working with General Motors Corp. to prepare a possible bankruptcy case, and the terms of a Chrysler filing might offer a glimpse into the shape of a GM filing. GM faces a June 1 deadline in its own efforts to draft a new restructuring plan.

The Canadian government is also expected to participate in backing the company.

LINK:toledoblade.com --
 

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Chrysler bankruptcy to be orderly

Sens. call for Chrysler bankruptcy to be orderly
April 24, 2009 - 11:17am

NEW YORK (AP) - With Chrysler LLC appearing increasingly likely to seek bankruptcy protection, members of Congress are calling for an orderly process that saves the company from liquidation.

"My hope is that it's not a liquidation," Sen. Chris Dodd, chairman of the Banking Committee, said Friday morning on the "Early Show" on CBS, "but what they call a debtor-in-possession, sort of Chapter 11 filing, which would allow for the reorganization of these companies."


Published reports Thursday said Auburn Hills, Mich.-based Chrysler was preparing a bankruptcy filing, which could come as early as next week. Such a bankruptcy would protect the pensions and retiree health care benefits of United Auto Workers union members, The New York Times reported.

One possibility is that a bankruptcy would allow the company to rid itself of unwanted liabilities. That would allow the Italian automaker Fiat SpA _ which has been in talks to acquire a stake in Chrysler _ to select which operations it wants, according to The Wall Street Journal.

"As we move forward in this process, we believe it's important to keep all options open," Chrysler said in a statement. "Chrysler will continue to work through the end of the month, based on the direction given by the Presidential Auto Task Force, to secure the support of the necessary stakeholders and reach a successful conclusion that the Administration and U.S. Treasury deems appropriate."

Messages seeking comment were left with the UAW and the Treasury Department.

Chrysler has been surviving on $4 billion in government aid since the beginning of the year and is six days away from a government-imposed restructuring deadline. The Obama administration has promised another $6 billion to the carmaker if it can arrange a tie-up with Fiat and extract deeper concessions from stakeholders, but that outcome appears increasingly remote.

A major sticking point involves a group of banks and hedge funds that hold about $6.9 billion in secured Chrysler debt. They are negotiating with the Treasury Department over a possible debt-for-equity exchange involving a stake in a Chrysler-Fiat alliance. Most recently, the Treasury has asked the debtholders to forgive $5.4 billion and take a 5 percent stake in the alliance, which is far from the lenders' latest offer.

Chrysler would file for bankruptcy even if it reaches an agreement with its lenders and Fiat, but if the deals fall through, the company would begin the process of liquidation, the Journal reported, citing several people familiar with the matter.

"I wish we had different results, but the realities are what they are," said Dodd, D-Conn. "This may be the best option, even though we would have preferred a different one."

"I hope this is not a liquidation _ I think that would be the wrong step _ but rather one that allows for reorganization," he said.

Sen. Debbie Stabenow, D-Mich., said late Thursday she continued to oppose bankruptcy for Chrysler.

"With Chrysler, we want to see Chrysler/Fiat come together. We want to see GM be able to make it on their own," Stabenow said on "The Ed Show" on MSNBC.

She added that banks that have received government aid should "be willing to stand up."

"I wrote another letter today to them, saying they need to step up and do their part to make sure these companies can be strong," she said.

(Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

NEW YORK (AP) - With Chrysler LLC appearing increasingly likely to seek bankruptcy protection, members of Congress are calling for an orderly process that saves the company from liquidation.

"My hope is that it's not a liquidation," Sen. Chris Dodd, chairman of the Banking Committee, said Friday morning on the "Early Show" on CBS, "but what they call a debtor-in-possession, sort of Chapter 11 filing, which would allow for the reorganization of these companies."

Published reports Thursday said Auburn Hills, Mich.-based Chrysler was preparing a bankruptcy filing, which could come as early as next week. Such a bankruptcy would protect the pensions and retiree health care benefits of United Auto Workers union members, The New York Times reported.

One possibility is that a bankruptcy would allow the company to rid itself of unwanted liabilities. That would allow the Italian automaker Fiat SpA _ which has been in talks to acquire a stake in Chrysler _ to select which operations it wants, according to The Wall Street Journal.

"As we move forward in this process, we believe it's important to keep all options open," Chrysler said in a statement. "Chrysler will continue to work through the end of the month, based on the direction given by the Presidential Auto Task Force, to secure the support of the necessary stakeholders and reach a successful conclusion that the Administration and U.S. Treasury deems appropriate."

Messages seeking comment were left with the UAW and the Treasury Department.

Chrysler has been surviving on $4 billion in government aid since the beginning of the year and is six days away from a government-imposed restructuring deadline. The Obama administration has promised another $6 billion to the carmaker if it can arrange a tie-up with Fiat and extract deeper concessions from stakeholders, but that outcome appears increasingly remote.

A major sticking point involves a group of banks and hedge funds that hold about $6.9 billion in secured Chrysler debt. They are negotiating with the Treasury Department over a possible debt-for-equity exchange involving a stake in a Chrysler-Fiat alliance. Most recently, the Treasury has asked the debtholders to forgive $5.4 billion and take a 5 percent stake in the alliance, which is far from the lenders' latest offer.

Chrysler would file for bankruptcy even if it reaches an agreement with its lenders and Fiat, but if the deals fall through, the company would begin the process of liquidation, the Journal reported, citing several people familiar with the matter.

"I wish we had different results, but the realities are what they are," said Dodd, D-Conn. "This may be the best option, even though we would have preferred a different one."

"I hope this is not a liquidation _ I think that would be the wrong step _ but rather one that allows for reorganization," he said.

Sen. Debbie Stabenow, D-Mich., said late Thursday she continued to oppose bankruptcy for Chrysler.

"With Chrysler, we want to see Chrysler/Fiat come together. We want to see GM be able to make it on their own," Stabenow said on "The Ed Show" on MSNBC.

She added that banks that have received government aid should "be willing to stand up."

"I wrote another letter today to them, saying they need to step up and do their part to make sure these companies can be strong," she said.

LINK:Sens. call for Chrysler bankruptcy to be orderly - wtop.com
 

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Union denies deal on Chrysler bankruptcy

Union denies deal on Chrysler bankruptcy

1 hour ago

April 24, 2009

DETROIT, Michigan (AFP) — The United Auto Workers on Friday dismissed speculation on a deal with the Obama administration for Chrysler to undergo a "quick rinse" bankruptcy that could lead to a merger with Fiat.

Union spokesman Roger Kerson refused to comment publicly on reports of a deal that would lead Chrysler to file for Chapter 11 bankruptcy protection.

But other UAW officials said the US Treasury, which is handling the negotiations, was waiting for a response from Chrysler's principal creditors on proposals that would eliminate more than half the company's 6.9 billion dollars in debt in exchange for equity in the reorganized company.

Chrysler officials, who have been given until May 1 by President Barack Obama to come up with a solid restructuring plan, said only that discussions were continuing both with the company's stakeholders and Italian automaker Fiat.

"Chrysler will continue to work through the end of the month, based on the direction given by the Presidential Auto Task Force, to secure the support of the necessary stakeholders and reach a successful conclusion that the administration and US Treasury deems appropriate," a company spokeswoman said.

Chrysler's viability would be "enhanced through an alliance with Fiat, as it represents a change in the company's business model that expands its global competitiveness," she added.

"As we move forward in this process, we believe it's important to keep all options open."

Patrick O'Keefe of O'Keefe and Associates, which specializes in turning around manufacturing companies, said bankruptcy was the preferred route for Fiat to acquire Chrysler.

Once the firm has filed for Chapter 11, he said, Fiat "can pick and choose which of assets it wants."

But he described as problematic efforts by the UAW to secure its health care and other benefits ahead of other secured creditors such as banks and hedge funds as part of a bankruptcy deal.

Suppliers, which are critical to Chrysler's continuing operations, are also likely to balk if they believe the UAW is getting preferential treatment, O'Keefe said.

Sergio Marchionne, Fiat's chief executive, has reaffirmed his commitment to reaching a deal with Chrysler, but on condition of obtaining concessions from the UAW.

Under the bankruptcy code, a judge can set aside collective bargaining agreements, but only if the company shows that good faith negotiations on a modified contract have stalled, said Doug Bernstein, a bankruptcy expert with the law firm of Plunkett and Cooney.

Rushing the process raises the risks that corners will be cut, due process brushed aside and mistakes made, he said.

"You don't want to get sidetracked by litigation or see 'quick rinse' become a 'rinse and repeat' bankruptcy," Bernstein said.

Meanwhile, Obama's auto task force is coming under pressure as the May 1 deadline for Chrysler to present a survival plan nears.

LINK:AFP: Union denies deal on Chrysler bankruptcy
 

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Task Force Refines Bankruptcy Plan for Chrysler

Task Force Refines Bankruptcy Plan for Chrysler
Lenders Resist Federal Pressure To Quit Claims


Saturday, April 25, 2009

The Obama administration's autos task force is racing to complete a bankruptcy plan for Chrysler by Monday after the company's creditors -- a fractious collection of 45 banks, hedge funds and financial firms -- balked at a deal to keep the automaker out of court.

The storied American automaker owes $6.9 billion to the creditors, who have opposed the government's demands that they trade most of their loan claims for a small stake in the company.


The Obama administration will send Chrysler into bankruptcy proceedings if the company and its lenders fail to reach an agreement by May 1, though it would prefer to settle the matter out of court, sources said.

So far, the Treasury and the creditors are far apart, a source said.

It would take "a miracle" to get the sides together by the deadline, said a source. The sources spoke on condition of anonymity because of the sensitivity of the talks.

As a result, by the end of next week, the automaker founded by Walter P. Chrysler in 1925 may be propelled into liquidation or rescued in a complex deal involving taxpayer money, concessions from the union and company lenders, and a partial merger with Italy's Fiat.

For the company's 54,000 employees and thousands of suppliers around the country, the anxiety is rising.

"The worst-case scenario is if they file for bankruptcy," said Greg Goodnight, mayor of Kokomo, Ind., which is home to four company plants that each employ 5,000, down from 7,000 in Chrysler's heyday. "Chrysler is a big employer here."

The autos task force is expected to negotiate with its stakeholders through the weekend, seeking to strike a new financial framework that would allow Chrysler to live on in the proposed takeover by Fiat.

At the same time, however, the task force is preparing for the bankruptcy proceeding that could become necessary if negotiations fail.

If bankruptcy becomes inevitable, the government team is leaning toward a "prepackaged" arrangement, a form that requires some agreement from the stakeholders before the court filing. That strategy would limit the time the company languishes in bankruptcy.

In court, a judge could swiftly force any of the company's recalcitrant stakeholders to take losses.

It is unknown how much more money the government is willing to lend Chrysler in or out of a bankruptcy proceeding, and the matter is still under review by the administration, a source said.

The administration favors keeping Chrysler out of bankruptcy, however, but only if it can get agreements from the union, the lenders and Fiat that would make the company viable again. It is working on a parallel path with General Motors, and yesterday, the government delivered $2 billion to GM as the struggling auto giant sought to avoid its own trip to bankruptcy court by eliminating brands such as Pontiac and closing factories.

In the Chrysler talks, a key piece of unfinished business involves the $10 billion Chrysler owes the union's retiree health fund. Under various proposals, the union would cut its demands for money in exchange for an equity stake.

No agreement in principle has been reached, but some sources said a loose framework has been settled on. There is also still no accord to protect union pensions. Last night, Chrysler reached a tentative agreement with the Canadian Auto Workers union on a new contract that would cut labor costs.

But the negotiations with lenders are the major source of uncertainty for the Chrysler team. The creditor group is led by J.P. Morgan Chase, Citigroup, Goldman Sachs and Morgan Stanley, which hold most of the debt. But the task is complicated by the fact that so many other firms, including hedge funds, own some of the Chrysler debt and play a role. In particular, some of the hedge funds have been reluctant to make concessions, sources said.

The key question hanging over the lender talks is what exactly the $6.9 billion in loans are worth.

As the administration and members of the Congress have noted, those loans are trading at about 15 cents on the dollar, and the government has offered about 22 cents on the dollar, as well as a five percent equity stake.

But Friday, the creditors fired back with an offer of about 54 cents on the dollar, and they want a far larger equity stake, 40 percent. The lenders argue that if the company goes into liquidation, they could recover as much as 30 to 50 cents on the dollar.

"Today's offer was still far from reasonable. With this new offer Chrysler's debt holders are still asking for much more than market value for their holdings," Rep. Gary Peters (D-Mich.) said in a statement, adding that he is "hopeful that debt holders will accept a fair deal so that Chrysler can avoid bankruptcy and hundreds of thousands of families will be protected."

With reports swirling that the company was destined for bankruptcy, the Obama administration's auto task force adviser, Ron Bloom, told Chrysler stakeholders that the government is working to strike a deal to avoid such a fate.

In meetings with Chrysler retirees yesterday and with dealers Thursday night, Bloom dismissed rumors that bankruptcy is certain.

A bankruptcy could terminate Chrysler's pensions, potentially slicing into the retirement pay of tens of thousands of retirees.

Bloom "said he understands the human toll of a company that goes into bankruptcy," said Chuck Austin, chief of the Chrysler nonunion retirees. "They said they're still trying to avoid bankruptcy. He said that's their main goal -- to work out a compromise without going to court."


Article: washingtonpost.com - nation, world, technology and Washington area news and headlines
 
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