54 cents on the dollar for their $6.9 billion in debt but still requesting a 40 percent equity stake in the reorganized carmaker

TO BE NOTED: From the NY Times:

Chrysler Lenders Propose New Counteroffer

Update | 6:08 p.m. Chrysler’s senior lenders on Friday has delivered a new offer to the Treasury Department, proposing to take about 54 cents on the dollar for their $6.9 billion in debt but still requesting a 40 percent equity stake in the reorganized carmaker, people briefed on the matter told DealBook.

It is the fourth in a series of counteroffers between the lenders and Treasury’s auto task force. Yet while the two sides continue to bargain toward an out-of-court restructuring, Treasury has directed Chrysler to prepare for a potential Chapter 11 bankruptcy filing, which would be made as soon as next week.

The latest proposal by the lenders’ steering committee would give the creditors about 54 cents on the dollar for their holdings, or $3.75 billion, as well as the 40 percent equity stake. The proposal also drops creditors’ demands that Italian carmaker Fiat contribute capital to its proposed alliance with Chrysler.

The lenders had previously asked for repayment of 65 cents on the dollar and a 40 percent equity stake in Chrysler.

Yet a gap remains between the two sides, although it has shrunken considerably over the past two weeks. The government’s most recent offer, made on Wednesday, would give the creditors 22 cents on the dollar, or $1.5 billion, and a 5 percent equity stake in Chrysler. Its first proposal, delivered late on April 12, offered just $1 billion and no equity.

Both sides have espoused a desire to reach an out-of-court solution, though several people with direct knowledge of the negotiations have questioned whether that is possible. Chrysler must strike an alliance with Fiat by April 30, while having wrung concessions from both its lenders and its unions. Otherwise, it faces what would be tantamount to a structured liquidation.

The New York Times first reported Thursday that the auto task force and Chrysler have reached an agreement-in-principle with the U.A.W., under which the union’s health care trust and pension would be largely, though not completely, protected. Should Chrysler reach an agreement with its Canadian union, it would leave the senior creditors as the sole party without a deal with the carmaker and the Obama task force.

The lenders have argued that their loans are backed by nearly all of Chrysler’s assets, including plants, equipment and brands. Should the company be forced to file, it could lead to a bruising legal fight, with the senior creditors arguing that they have first right to the carmaker’s assets — even ahead of the government.

The steering committee for the lenders includes JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs, as well as the investment managers Elliott Management, Stairway Capital Management, Oppenheimer and Perella Weinberg Partners‘ Xerion fund.

In a statement issued Friday afternoon, Rep. Gary Peters of Michigan, a Democrat whose district includes Chrysler’s headquarters in Auburn Hills, said the creditors’ most recent offer was insufficient. Here’s his full statement:

“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, which amounts to a taxpayer subsidy. I am pleased that the pace of negotiations has accelerated and am hopeful that debt holders will accept a fair deal so that Chrysler can avoid bankruptcy and hundreds of thousands of families will be protected.”

The four major financial institutions holding the vast majority of Chrysler’s secured debt are JP Morgan, Citigroup, Goldman Sachs and Morgan Stanley. Congressman Peters wrote to the CEOs of these companies on April 1 asking them to negotiate in good faith with Chrysler to reach a mutually beneficial agreement with the automaker. At that time, Chrysler’s debt holders were not even at the bargaining table. While it took the banks nearly two weeks to issue a counteroffer in response to Treasury’s first offer earlier this month, this offer comes less than 48 hours after Treasury’s most recent offer extended Wednesday.

Chrysler debt is currently trading around 15 cents on the dollar. Moody’s Investor Service estimated this week that debt holders could expect to recover 20 cents on the dollar in liquidation.

–Michael J. de la Merced"