TO BE NOTED: From the NY Times:
"U.S. in Standoff With Banks Over Chrysler DETROIT — The Obama administration has entered a tense showdown with several of the nation’s largest banks that appears likely to determine whether Chrysler survives.
Last week the Treasury Department, which runs President Obama’s automobile task force, presented banks holding $6.9 billion in Chrysler’s secured debt with a plan under which they would get about 15 cents on the dollar, or about $1 billion.
That is roughly the trading level of Chrysler debt in recent days, a reflection of Mr. Obama’s declaration that the firm is not viable on its own, and must put together a partnership with Fiat or go out of business.
The government’s insistence on an aggressive write-down of the debt is part of an enormous game of chicken with the debtholders.
But it is also a test for Mr. Obama and his Treasury secretary, Timothy F. Geithner, as they deal with banks that, in an effort to keep the American financial system from collapsing, have also been lent money under the government’s Troubled Asset Relief Program.
On Monday the banks, led by JPMorgan Chase and Citigroup, rejected the administration’s plan outright, with some of the debtholders arguing that they would rather break up Chrysler and sell its assets — notably its Jeep brand — because they believed that they would receive more money selling the assets than they were being offered by the administration.
In a plan submitted to the administration on Monday night, the debtholders insisted that they receive about 65 cents on the dollar, or about $4.5 billion, and roughly a 40 percent stake in whatever car company emerges as a re-engineered Chrysler.
The standoff with the banks was underscored Tuesday evening by an administration official. “It is neither in the interest of Chrysler’s senior lenders nor the country for them to advance a proposal that would yield them an unjustified return,” said the official, who requested anonymity because the negotiations were incomplete. “Our hope and expectation is that these lenders take a more constructive position in the coming days that reflects the actual situation that they and the company face.”
Inside the administration, there is increased talk of pushing Chrysler into a structured bankruptcy, re-emerging with Fiat as a major investor in the company.
It is unclear what assets would be left to the banks, but representatives of those financial institutions have warned the task force “that a bankruptcy would be very messy and everyone would lose — those of us who carry the debt, and those in the government who are trying to save jobs,” said one banker involved in the negotiations who also requested anonymity because of the delicate nature of the talks.
Terms of Chrysler’s proposed alliance with the Italian automaker Fiat are essentially complete, with Fiat agreeing to take an initial 20 percent stake in the company in return for providing small cars, fuel-efficient engines and other technology. It would not put any cash into the deal.
Mr. Obama said in March that Chrysler, which has received $4 billion in federal loans, must reduce its debt if it is to get further government assistance and avoid a Chapter 11 bankruptcy filing.
The company also has been ordered to use stock to finance half of its $10.6 billion in health care obligations for retired union workers.
The United Automobile Workers union has tentatively agreed to the stock-financing plan, said people close to the talks. But the union and Chrysler have yet to complete a schedule for the company’s cash contributions to the health care trust.
Neither the U.A.W. nor the banks, however, appear willing to strike a deal before the other side does the same.
The chief executives of Fiat and Chrysler, along with the U.A.W.’s president, Ron Gettelfinger, met for a second day on Tuesday in Washington with the auto task force.
Fiat cannot complete its alliance with Chrysler until the debt and health care issues are resolved. But Fiat’s chief executive, Sergio Marchionne, remains committed to the alliance, particularly because it gives Fiat an opportunity to re-enter the American car market.
The steering committee for the lenders is made up of JPMorgan Chase, Citigroup, Morgan Stanley, Goldman Sachs, and four other investment firms. Together, they represent a wider group of 45 banks and hedge funds.
The lenders have argued that they are being asked to shoulder too much of the burden of cutting Chrysler’s debt, that the U.A.W. is getting preferred treatment, and that Fiat should have to contribute cash to Chrysler’s balance sheet.
The hard line by the steering committee drew criticism Tuesday from Representative Gary Peters, Democrat of Michigan, who noted that JPMorgan and other banks had received their own federal aid.
“It is extremely disappointing that while other stakeholders have agreed to work with President Obama to advance Chrysler’s restructuring, financial institutions that have already taken billions of dollars in taxpayer support are refusing to do the same,” Mr. Peters said. Chrysler is continuing to make cuts. The company has made buyout offers to its remaining 26,000 U.A.W. workers that expire on April 27.
The automaker is also in talks with the Canadian Auto Workers union to reduce costs in Canada, which account for about 25 percent of Chrysler’s production.
Mr. Obama said Chrysler would get $6 billion more in loans if it can get the debt and health care concessions by April 30, and complete its Fiat alliance.
Bill Vlasic reported from Detroit and David E. Sanger from Washington. Michael J. de la Merced contributed reporting from New York."
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