Lenders likely to bail out Chrysler: reports

29 April 2009

Chrysler LLC, the smallest of the 'big three' US automakers, faces a Thursday deadline tomorrow to form an alliance with Fiat SpA in order to qualify for further US aid, though it is still uncertain whether it can avoid a bankruptcy filing.

However, a Reuters yesterday quoted two unnamed officials as saying that the US treasury has reached an in-principle agreement with Chrysler's first-lien lenders that may help the troubled automaker avoid bankruptcy.

The terms of the high-stakes debt restructuring deal were not immediately available, and representatives of Chrysler, the lenders and the treasury were unavailable for comment. Fiat, the Turin, Italy-based automaker, will form an alliance with Chrysler even if the company goes into bankruptcy, according to a Bloomberg report.

In the past week, Chrysler has nearly accomplished a set of goals set by the treasury, including cost-saving labour agreements with its unions and a tentative agreement to extinguish the vast majority of its bank debt.

The latter has a sticking point that may lead to a bankruptcy filing. Some of Chrysler's 46 lenders may balk at exchanging their $6.9 billion in debt for $2 billion in cash. If even one of them does this, it may force the Michigan-based automaker to seek court protection, according to reports. Official comments are hard to come by because the negotiations are private.

Chrysler's lenders, including JPMorgan Chase, Goldman Sachs Group, Morgan Stanley and Citigroup, have agreed to write down the debt to $2 billion, the Washington Post reported on Tuesday.