Chrysler has agreed a deal with creditors but bankruptcy is still very likely, according to the latest reports.
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Its largest lenders and the US government last night said they had agreed a framework to cut the automakers’ debt by US$6.9bn but restructuring inside of bankruptcy was still a strong possibility, officials told Reuters.
“We don’t want to prejudge the outcome. There is still some way to go in the negotiations, so I would not rule anything in or out,” White House spokesman Robert Gibbs told the news agency after the Obama administration confirmed the deal with most of Chrysler’s primary debt holders.
In an interesting development, Canadian Auto Workers president Ken Lewenza said he had met Fiat chief Sergio Marchionne who told him that Chrysler was likely to seek bankruptcy protection temporarily in the United States.
According to Lewenza, Marchionne “was careful, he said:’You know Ken, a lot of things can happen in two days, but if I was a betting man, I would suggest Chrysler is going to fall into Chapter 11′.”
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By GlobalDataLewenza paraphrased Marchionne as saying: “We may need to do that, regardless of all the bondholders and stakeholders coming to the pump, there’s still a lot of work that has to be done, but the Canadian plants are about as well positioned as you could possibly be.”
He told Reuters the meeting with Marchionne, and Chrysler vice chairman and president Tom LaSorda, on Monday night at a steak house in Toronto lasted two hours and was very “respectful and cooperative”.
Lewenza reportedly said Marchionne acknowledged the sacrifices made by the union’s members in the concession deal agreed over the weekend but added that it would allow the Canadian plants to operate in the future under a Chrysler-Fiat partnership.
US government officials, including senator Carl Levin of Michigan, told Reuters that a bankruptcy filing, if needed, would be launched with survival in mind.
“If they do go into bankruptcy, it would really be in and out,” Levin said.
One source with senior-level knowledge of the Chrysler restructuring told the news agency that a ‘surgical bankruptcy’ could be a way, for instance, to address any “recalcitrant” lenders.
And Barclays Capital analyst Brian Johnson told Reuters it was becoming “increasingly clear that Chrysler will be restructured and avoid liquidation”, adding that would leave General Motors and Ford less opportunity to gain any of Chrysler’s market share while parts suppliers would benefit.
The deal reached with major banks late on Monday would eliminate US$6.9bn in Chrysler debt in exchange for $2bn in cash but no equity in a new company, according to Reuters’ source. Chrysler’s 40-plus lenders were performing due diligence on the terms, another source with knowledge of the banks’ review told the news agency.
US representaive Gary Peters, whose Michigan congressional district is home to Chrysler’s headquarters, urged the debt holders to accept the deal. “The remaining debt holders should understand that this deal is better than what they could expect in bankruptcy,” he said.
The committee of lenders includes JPMorgan Chase & Co, Goldman Sachs Group, Morgan Stanley and Citigroup.
A weekend agreement between Chrysler and the United Auto Workers to modify the union’s labour contract and reduce the amount of money Chrysler would need to contribute to a retiree healthcare trust would see the UAW eventually owning 55% of the automaker under the concessionary contract on which members must vote by tonight (29 April).
Fiat would “eventually own” 35% of Chrysler stock, according to a UAW document distributed to Chrysler hourly workers, if the alliance was finalised, Reuters said.
Fiat vice chairman John Elkann last night said Fiat’s deal with Chrysler would be decided close to the Thursday deadline, the report added.
