Detroit/Washington: Chrysler rushed to clinch deals with Fiat SpA and a fractious group of lenders on Wednesday in a last-ditch effort to avoid bankruptcy ahead of a government-imposed 30 April restructuring deadline.
According to a report in the Wall Street Journal citing people familiar with the matter, those efforts hit a major roadblock late in the day as talks between the US Treasury Department and lenders collapsed.
This meant bankruptcy for Chrysler was “all but certain”, the report said, citing those sources.
Earlier in the evening, US President Barack Obama said concessions by Chrysler’s unions and its major bank lenders had made him more hopeful than a month ago that the struggling automaker could be made viable.
But he added it was still not clear if Chrysler would need to seek bankruptcy protection to cement concessions from its lenders and move ahead with a planned alliance with Italy’s Fiat.
“The details have not yet been finalized so I don’t want to jump the gun, but I’m feeling more optimistic than I was about the possibilities about that getting done,” Obama said at a news conference.
The White House has set a series of aggressive targets for Chrysler in order to justify another $6 billion in investment on top of $4 billion in emergency loans the government has extended since the start of the year.
The No. 3 US automaker has won cost-cutting concessions from its unions in the United States and Canada and is on the brink of closing its deal with Fiat, a person involved in those negotiations told Reuters.
That leaves the focus on ongoing debt restructuring talks spearheaded by the Obama administration’s autos task force and former investment banker Steve Rattner.
In a bid to win over three fund management firms that had spurned an offer to accept $2 billion in cash in exchange for writing off all of Chrysler’s $6.9 billion in secured debt, US officials sweetened the terms by throwing in another $250 million, people involved in those discussions said.
The three creditors who balked at the US Treasury’s $2 billion offer were Oppenheimer Funds, Perella Weinberg Partners and Stairway Capital, sources said.
About 45 financial institutions hold Chrysler’s secured debt. Failure to win their support on debt forgiveness would send the automaker into bankruptcy, officials have said.
An Obama administration official said the Chrysler talks could run up to the deadline of 11:59pm EDT on Thursday.
Fiat and Chrysler are prepared to complete a merger deal by Thursday that would be taken into bankruptcy court as a key element of the restructuring plan if needed, a person with direct knowledge of the preparations said.
Meanwhile, Chrysler’s almost 27,000 US factory workers represented by the United Auto Workers union voted on Wednesday in favor of a modified contract including cost-cutting steps intended to make the automaker’s wage and benefits competitive with its leanest rivals in the US market.
The new UAW contract should give the union a 55% stake in a restructured Chrysler.
GM bondholders protest
Chrysler’s race to restructure has played out as a kind of prelude to the slower-moving process under way for its larger rival General Motors Corp.
GM bondholders who represent about $27 billion of the automaker’s debt are being asked to write off about 90% of what they are owed in a debt-for-equity exchange that the automaker launched this week despite investor protests.
A committee representing GM bondholders planned to present an alternative plan to the US autos task force on Thursday that would give them a controlling 51% equity interest in a restructured company, a person familiar with the plans told Reuters.
Bondholders had been offered 10% under the terms of the GM debt exchange.
By contrast, the UAW, which is owed $7 billion less than bondholders, would get a 39% stake.
“What they’ve offered us is ridiculous,” said Chris Crowe, 50, a Denver, Colorado-based home inspector at an event organized for small bondholders in a Detroit suburb. “I know there are only so many pieces of pie, but they’re giving us crumbs.”
Auto dealers affiliated with both Chrysler and GM announced they had hired a pair of high-profile law firms to represent their interests in the government-directed restructuring.
GM, which has been kept in operation with $15.4 billion of US government funding, has until 1 June to push ahead with its own restructuring which includes plans to cut 40% of its US dealers in less than two years.
Auto dealers are independently owned and protected by state franchise laws that industry executives have said could make it very expensive and difficult for GM to shut down dealerships.