Wednesday, April 29, 2009

The Treasury Department has sweetened its offer to holders of Chrysler’s secured debt

TO BE NOTED: From the NY Times:

"April 30, 2009
Treasury Sweetens Offer to Chrysler Debt Holders

The Treasury Department has sweetened its offer to holders of Chrysler’s secured debt in a last-minute effort to keep the American automaker out of bankruptcy court, according to people briefed on the matter.

To win over several hedge funds, which have been holding out for better terms, the Treasury increased its cash offer by $250 million, to $2.25 billion, these people said. If all of the secured holders agree to the new deal, which would give them the cash in exchange for retiring about $6.9 billion of debt, Chrysler may still have a chance of restructuring out of bankruptcy court.

During a prime-time press briefing at the White House on Wednesday, President Obama said it was “not yet clear” Chrysler would have to move forward with a bankruptcy. He said that given concessions to which the United Automobile Workers and major debtholders have already agreed, “I am actually very hopeful, more hopeful than I was 30 days ago, that we can see a resolution that maintains a viable Chrysler automobile company out there.”

He added: “The fact that the major debtholders appear ready to make concessions means that even if they ended up having to go through some sort of bankruptcy, it would be a very quick type of bankruptcy. And they could continue operating and emerge on the other side, in a much stronger position.”

The four big banks that own 70 percent of Chrysler’s secured debt have already signed on to the Treasury’s plan and are trying to line up the other lenders in favor of the new terms. A vote of the secured lenders was scheduled for Wednesday night.

If all 46 lenders do not agree to the new offer, Chrysler will most likely file for Chapter 11 bankruptcy protection on Thursday, and the lenders will be forced to accept the $2 billion they were originally offered or fight in court for a higher amount.

Several investment funds continued to reject the Treasury’s offer at a vote of the lenders conducted on Wednesday evening, even with the new sweetened terms, the people familiar with the talks said.

The Obama administration is adamant that every lender participate in the debt swap, according to people close to the talks who asked not to be identified because they had signed confidentiality agreements.

People briefed on the negotiations said that while it seemed certain Chrysler would survive and avoid liquidation, it was not yet clear whether it would have to be placed into bankruptcy to sort through any unresolved issues with creditors.

Administration officials said late Wednesday that while bankruptcy remained a strong possibility, talks with all of the stakeholders in Chrysler could very well continue right up to an administration-imposed deadline at 11:59 p.m. Thursday.

A bankruptcy filing could lead to a prolonged battle in court with the company’s lenders, dealers and parts suppliers across the country. In bankruptcy, the government would also have to provide financing for the company to operate.

The Obama administration has also been pushing Chrysler to enter into a deal with the Italian automaker Fiat. That deal is scheduled to be signed on Thursday, according to people close to the company.

A person close to Michigan’s Congressional delegation said Wednesday that Mr. Obama would probably opt for a bankruptcy filing. The bankruptcy would be intended to be executed in as little as 60 days, with Chrysler shedding outstanding debt and other liabilities before emerging, according to people briefed on the negotiations.

Chrysler officials remained hopeful Wednesday that the company could avoid bankruptcy. In a letter to employees, Chrysler’s chairman, Robert L. Nardelli, said the company was making progress with Fiat and hoped to have a deal in hand by Thursday.

“I’m encouraged by this progress and I want you to know I deeply appreciate the sacrifices made by so many constituents to help us reach the restructuring targets established by the government,” Mr. Nardelli said.

There was no immediate comment from Fiat.

Any deal with Fiat would involve management changes, including the departure of Mr. Nardelli, who joined the company in August 2007. Mr. Nardelli told employees this month that he was likely to leave the company.

The new management is likely to take charge of Chrysler as soon as agreements with the Treasury Department are completed, people briefed on the situation said. They spoke on the condition of anonymity because they were not authorized to speak for the government.

If there is a bankruptcy filing, the management team will lead the company until it has finished restructuring. It was not clear whether one of Chrysler’s executives or a Fiat executive would head the company.

Chrysler, subsisting on $4 billion in federal loans, has asked for another $7 billion in government aid to carry it through the worst automotive market in the United States in 25 years.

But members of the president’s special auto task force are unsure the company can be viable for the long term without the use of what has been called a “surgical bankruptcy.”

As the talks with Fiat and the lenders entered the final hours, members of the United Automobile Workers union voted on a historic deal in which the union would take a 55 percent stake in Chrysler. The stake would finance half of a new trust to administer retiree health care costs.

The 26,000 workers represented by the U.A.W. were to conclude their voting Wednesday night.

Micheline Maynard, Nick Bunkley and Jim Rutenberg contributed reporting."

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