Chrysler Lenders Offer to Swap $2.5B for Equity

April 21, 2009 - 2:50 PM
Banks and hedge funds that hold $6.9 billion in Chrysler LLC debt have proposed forgiving $2.5 billion of it in exchange for about a 40 percent stake a Chrysler-Fiat alliance, according to two people briefed on the proposal.
Detroit (AP) - Banks and hedge funds that hold $6.9 billion in Chrysler LLC debt have proposed forgiving $2.5 billion of it in exchange for about a 40 percent stake a Chrysler-Fiat alliance, according to two people briefed on the proposal.
 
One of the people said the lenders delivered their counterproposal to Chrysler and the U.S. Treasury Department late Monday night. Neither person wanted to be identified because the negotiations are private.
 
The counteroffer comes as Chrysler races to meet a government-imposed April 30 deadline to swap debt for equity, cut labor costs and negotiate an alliance with Italy's Fiat Group SpA. If it misses the deadline, government aid will end and Chrysler likely faces liquidation.
 
Last week, creditors rejected a Treasury Department offer to erase the debt for $1 billion cash. The new offer, which would swap 35 percent of the debt for equity, still falls short of the government's restructuring goals calling for Chrysler to retire at least two-thirds of its secured loans.
 
Chrysler is living on $4 billion in federal loans and could get another $500 million to survive through April. But without massive restructuring and a Fiat deal, government officials have said they won't lend the struggling automaker any more money.
 
The counteroffer from a steering committee would give the equity stake to first-lien lenders including Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley and several smaller banks, plus some hedge funds. Chrysler has about 45 first-lien lenders who would be first in line to get money if the company's assets were liquidated.
 
"The goal is something close to 40 percent of the equity" in the combined Chrysler-Fiat company, according to one of the people briefed on the lenders' proposal. "Taking equity is a risky proposition," the person said.
 
Messages were left with spokeswomen for the Treasury Department and Chrysler.
 
Chrysler and Fiat are discussing a deal in which Fiat would take a 20 percent stake in the company in exchange for Fiat's small-car technology. Fiat CEO Sergio Marchionne is in the U.S. through today taking part in the negotiations.
 
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AP Auto Writer Dan Strumpf reported from New York.