Talks with Chrysler's lenders fall apart
- By TOM KRISHER and BEN FELLER â¢ Associated Press â¢ April 30, 2009
Talks between Chrysler LLCâs lenders and the Treasury Department to reduce the automakerâs $6.9 billion in secured debt and keep it out of bankruptcy protection have disintegrated, a person familiar with the talks said early today.
Although the talks broke off, enough progress was made Wednesday in other areas that a Chrysler-Fiat partnership was expected to move forward, even if a bankruptcy reorganization is part of the Auburn Hills automaker's restructuring.
Chryslerâs fate was in the hands of about 40 hedge funds that hold about 30% of its debt. Although four banks holding 70% of the debt had agreed to erase it for $2 billion, the hedge funds were holding out for a better deal.
To entice the hedge funds into going along with the banks, the government on Wednesday afternoon added $250 million to the $2 billion that the banks had settled for and gave the hedge funds a 6 p.m. deadline to work it out, two people briefed on the talks said.
But several of the funds came back with their own different counterproposals, leaving the Treasury Department to bargain with 46 funds, the person said. Treasury extended the deadline into the evening, but, when it appeared there was no central authority to negotiate with, decided to end talks around midnight.
âThis is the one shot when everybody had a chance to say yes or no,â the person said. âYou had 46 different people here, and they said no.â
All of the people spoke on condition of anonymity because the negotiations were private.
The increased cash offer showed how much the Obama administration wanted to consummate a Chrysler-Fiat partnership and avoid bankruptcy before Thursdayâs deadline.
The collapse of the talks means Chrysler will almost certainly head for Chapter 11 bankruptcy protection, unless a deal can be salvaged by the governmentâs deadline of 11:59 p.m. Thursday. Others briefed on the negotiations said that in order for Chrysler to get a deal without bankruptcy, it needs to get 100% of its creditors to sign on.
But bankruptcy doesnât mean the end of the company. The people said plan B is for Chrysler to file for Chapter 11 with funding help from the government. Under the bankruptcy law that Chrysler would file under, a judge would decide how much creditors would get, but is likely to go with any settlement agreed to by the majority of the creditors, the people said.
Free Press Business Writers Justin Hyde and Greg Gardner contributed.