AP sources: Chrysler to file for bankruptcy
April 30, 2009 - 10:17am



WASHINGTON (AP) - Chrysler will file for bankruptcy after talks with a small group of creditors crumbled just a day before a government deadline for the automaker to come up with a restructuring plan, two administration officials said Thursday.

The Obama administration had long hoped to stave off bankruptcy for Chrysler LLC, but it became clear that a holdout group wouldn't budge on proposals to reduce Chrysler's $6.9 billion in secured debt, according to the officials, who spoke on condition of anonymity because the filing plans are not public. Clearing those debts was a needed step for Chrysler restructure by the Thursday night deadline.

Bankruptcy doesn't mean the nation's third largest automaker will shut down. And the privately-held Chrysler is expected to sign a partnership agreement with the Italian company Fiat as early as Thursday as part of its restructuring plan. A Chapter 11 bankruptcy filing would allow a judge to decide how much the company's creditors would get.

President Barack Obama is expected to discuss the nation's auto sector at noon Eastern.

The Treasury Department's auto task force has been racing in the past week to clear the major hurdles that prevented Chrysler from coming up with a viable plan to survive the economic crisis ravaging nation's automakers.

Along with the Fiat deal, the United Auto Workers ratified a cost-cutting pact Wednesday night. Treasury reached a deal earlier this week with four banks that hold the majority of Chrsyler's debt in return for $2 billion in cash.

But the administration said about 40 hedge funds that hold roughly 30 percent of that debt also needed to sign on for the deal to go through. Those creditors said the proposal was unfair and were holding out for a better deal.

"While the administration was willing to give the holdout creditors a final opportunity to do the right thing, the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler's future success," said one of the administration officials.

A third person briefed on Wednesday night's events said the Treasury Department and the four banks tried to persuade the hedge funds to take a sweetened deal of $2.25 billion in cash. But in the end, this person said most thought they could recover more if Chrysler went into bankruptcy and some of its assets were sold to satisfy creditors. This person asked not to be identified because details of the negotiations have not been made public.

When it files for bankruptcy, Chrysler would continue operating and Fiat would still sign on as a partner on Thursday, the people said. The government already has promised to back Chrysler's warranties in an effort to allay customers' fears that the automaker wouldn't be around to honor them.

President Barack Obama's auto task force in March rejected Chrysler's restructuring plan and gave it 30 days to make another effort, including a tie-up with Fiat. The company has borrowed $4 billion from the federal government and needs billions more to keep operating. President Obama said Wednesday night while the lender talks were still ongoing that he was "very hopeful" that deals can be worked out to keep Chrysler LLC a viable automaker, and more hopeful than he was a month ago that the company will stay in business.

The UAW agreement, which would take effect May 4, meets Treasury requirements for continued loans to Chrysler Corp., and includes commitments from Fiat to manufacture a new small car in one of Chrysler's U.S. facilities and to share key technology with Chrysler.

Meanwhile, the Fiat partnership means Chrysler CEO Robert Nardelli could be out of a job. In an April e-mail to employees, he said that if the deal is completed, Chrysler would be run by a new board appointed by the government and Fiat. The new board, Nardelli wrote, would pick a CEO "with Fiat's concurrence."

Sergio Marchionne, CEO of the Italian automaker, told reporters earlier this month that he could run Chrysler. Obama said Wednesday that Fiat's management "has actually done a good job transforming their industry."

 

And so it begins.

 

I'm wondering if this won't actually help GM. Chrysler debt holders that held out for a better deal forced this. Now if they actually get less value back than what Chrysler had offered them, wouldn't the GM hold outs think twice before turning down a deal that would keep GM out of bankruptcy?

 

Didn't ford say all along if any of the big 3 went in to bankruptcy it would force the other 2 to also just to stay competitive?

 

Time will tell. I think they stand a better deal if they go to court.

If I were a bondholder and my bond was floated to cover VEBA payments, I'd be looking to the courts to review the nature of compromises supposedly made by all parties. I might think I was getting the short end of the stick @ 29 cents on the dollar to settle and the UAW and FIAT walk with the ownership of stock that might rise in value.

I just don't know the particulars are. As a taxpayer I'd prefer to know who gets what and if "haircuts" are being spread equitably.



Maybe the bond holders felt it was a bad backroom deal for them?

Our president wants transparency. Make it transparent in the courts.

I'm a bit nervous that the political powers that be owe the Unions. The government is brokering the deal with MY money.

A loss as a bond holder is one thing. It's how things can happen. I don't want to see investors unwilling to purchase bonds because they fear the government will screw them.

Once again, as a taxpayer who's invested? Let the courts determine who's got to take the fall.

The fact that it appears the UAW and FIAT liked the deal concerns me. That deosn't mean it was not a good deal, it just means I'm suspicious.

Whatever works out for GM to have the best chance of success will, hopefully, be a result.

 

The article said some creditors expected more in bankruptcy than what they were being offered. But of course each situation will be different.

It might help GM if buyers really start staying away from Chrysler now. Both Ford and GM could pick up some truck and SUV sales. I guess minivan shoppers will have to defect to the imports though.

 

Perhaps things have changed since they said that. Union agreements have reduced labour costs quite a bit, and Ford renegotiated a lot of its debt down to a fraction of what it was last year. They might be in a good enough competitive position to weather things out now.

The one thing that could force bankruptcy on GM and Ford now is if the courts don't give enough to Chrysler's suppliers to keep them afloat. Once suppliers start failing from taking a loss on their Chrysler contracts, they may not be able to keep their factories going to supply GM and Ford (and the import too, for that matter). I wouldn't be surprised to see some additional focus by the government on supplier health.

 

I think when they said that they fully expected GM to file first, not Chrysler. Perhaps it'll be less of an impact on Ford since it wasn't GM.

 

I've spent the last half hour getting input on Chrysler's bankruptcy.

Seems that the bankruptcy is going to be used to flatten the small group of holdouts (3 investment hedge funds.... not a very popular group after those guys got massive federal bailouts themselves) that apparently demanded up to twice what everyone else was getting.

From what I've seen and heard it seems that they have phenominal backup and organization in this bankruptcy. Financing of the company's verious components and operations seem to be well financed, and there is no disruption in production.

No doubt whatsoever Chrysler will emerge from this. Everything that would normally be sorted out in BK court is already sorted out.

Short of an extremely unlikely court decision, Chrysler's going to actually pull this off.

Yet again, Chrysler proves it's historic scrappy ability to avoid certain death.

Chrysler seems like the Rocky Balboa of the car industry.

 

A prediction or a guess of the future is fine, but already checking this off as a win for a resiliant Chrysler is premature. They haven't even officially filed yet....

 

The thing that really surprised me about the whole announcement was the fact that they're marking Chrysler Financial as "Not Viable" and GMAC will now finance Chrysler vehicles.

 

At first blush this smacks of a taxpayer funded takeover of Chrysler by FIAT.

I'm gratified some folks will keep thier jobs.

I'm disappointed an American company will end up not being an American company.

I don't see any preservation of American manufacturing in this.

We'll see how fair the bankruptcy proceedings go.

If it isn't fair and within existing laws, the bond market will dry up.

If the government wants a showdown with investors, they will get it.

If that happens the taxpayers have only seen the tip of the loan and bailout iceberg that will rear up.

 

Heh, they already went down that road before with the unholy Daimler merger.

 

If I recall correctly, Fiat will only get a 20% stake in Chrysler. It's not a take-over, but a partnership. Chrysler will still be an American car company, but a part of it will be foreign owned as a mutually beneficial exchange.

 

And I'd rather not see it again. Not on my dime.

Nardelli cooperates and he's out. Interesting.

I think Cerberus will tend to his wounds.