Chrysler Bankruptcy Uncertain a Day Before Task Force Deadline
By Mike Ramsey
April 29 (Bloomberg) -- Chrysler LLC, the third-largest U.S. automaker, faces a deadline of tomorrow to form an alliance with Fiat SpA and qualify for further U.S. aid, and no one can say whether it will avoid a bankruptcy filing.
Fiat, the Turin, Italy-based automaker, will form an alliance with Chrysler even if the company goes into bankruptcy, a person familiar with the negotiations said yesterday. The only question is whether it will be necessary, he said.
“It is increasingly clear that Chrysler will be restructured and avoid liquidation,” Brian Johnson, a Barclays Capital analyst based in Chicago, wrote in a note to investors yesterday.
In the past week, Chrysler has nearly accomplished a set of goals set by the U.S. Treasury, including cost-saving labor 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 one of them does, it may force the Auburn Hills, Michigan-based automaker to seek court protection, another person familiar with the matter said.
The larger banks are trying to have individual conversations with each member of the lender group to try to convince them to take the offer, said a person familiar with the negotiations.
Avoid Bankruptcy
The option preferred by Chrysler, Fiat and the U.S. is to avoid bankruptcy, said people familiar with the matter, who declined to be named because negotiations are private. The Treasury lent Chrysler $4 billion and said it would lend as much as $6 billion more if Chrysler forms an alliance with Fiat.
If that can’t be accomplished, Chrysler would be put into bankruptcy and quickly purchased by a new company formed by the government that would have an ownership structure similar to that envisioned without a bankruptcy filing, said one of the people.
“This thing could happen,” Senator Carl Levin, a Michigan Democrat, said in an interview. “If they do have to go into bankruptcy, it could really be an in-and-out deal.”
GM’s Situation
As Chrysler nears a conclusion to its restructuring efforts, Detroit-based General Motors Corp. is running down a similar path that will conclude on June 1. It offered its bondholders 10 percent of GM’s ownership in exchange for giving up $27.5 billion in unsecured debt.
The largest U.S. automaker said in a regulatory filing it is considering a bankruptcy process that would be very similar to the one contemplated for Chrysler should GM’s out-of-court restructuring fail: The government would form a new company and buy GM’s best assets from the bankrupt entity.
In the Fiat-Chrysler deal, the Italian automaker would take an initial stake of 20 percent in Chrysler in exchange for giving the U.S. company access to its small-car technology, the company said in a presentation last week. It could get an additional 15 percent by achieving government-set milestones.
Fiat has an option to then purchase a majority interest in the company after all government loans are repaid.
A trust to cover retiree health care for the United Auto Workers union, which reached a settlement with Chrysler for a cost-saving labor agreement, would own 55 percent of Chrysler.
‘Working Together’
“I think Fiat wants it,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan. “They have been working together pretty intimately now and they’ve decided this makes sense. I don’t think there is any doubt that Fiat will be the senior partner in this, but it has the foundational elements that DaimlerChrysler never had.”
Chrysler was part of DaimlerChrysler AG from 1998 to 2007, when Cerberus Capital Management LP bought an 80 percent stake. Cerberus took the remaining 20 percent from Daimler AG April 27, the German automaker announced.
Chrysler won agreement yesterday from its four largest banks, which have about 70 percent interest in the $6.9 billion debt, to take the cash payout. It needs all of the lenders to agree in order to settle the issue out of bankruptcy court.
Chrysler also got labor contracts from the United Auto Workers union and Canadian Auto Workers union in the past week. UAW members are voting on the agreement; CAW members ratified their contract over the weekend.
A Chrysler bankruptcy remains a possibility, said a person familiar with the bank negotiations. A quick type of bankruptcy may be needed to bring any dissenters into an agreement, according to the person.
“As we enter the homestretch there’s going to be a tremendous amount of speculation and it would be inappropriate to comment,” said Shawn Morgan, spokeswoman for the company.
To contact the reporter on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net
Last Updated: April 28, 2009 23:44 EDT |
