U.S. Is Said to Prepare Filing for Chrysler Bankruptcy (NYT)

Discussion in 'General Motoring' started by Jim Higgins, Apr 23, 2009.

  1. Jim Higgins

    Jim Higgins Guest

    U.S. Is Said to Prepare Filing for Chrysler Bankruptcy
    http://tinyurl.com/d4uhwj

    DETROIT — The Treasury Department is preparing a Chapter 11 bankruptcy
    filing for Chrysler that could come as soon as next week, people with
    direct knowledge of the action said Thursday.

    The Treasury has an agreement in principle with the United Automobile
    Workers union, whose members’ pensions and retiree health care benefits
    would be protected as a condition of the bankruptcy filing, said these
    people, who asked for anonymity because they were not authorized to
    discuss the case.

    Moreover, Fiat of Italy would complete its alliance with Chrysler while
    the company is under bankruptcy protection.

    The only major question that remains unresolved is what happens to
    Chrysler’s lenders, who hold $6.9 billion in company debt. The
    government’s most recent offer, presented Wednesday, would give the
    company’s lenders about 22 cents on the dollar, or $1.5 billion, and a 5
    percent equity stake in a reorganized Chrysler. Earlier this week, a
    steering committee of the lenders proposed that they receive 65 cents on
    the dollar, or $4.5 billion, and a 40 percent equity stake.

    Officials at Chrysler and the Treasury were not immediately available
    for comment.

    A bankruptcy filing by Chrysler would be the first among Detroit’s
    troubled automakers, who have been mired in a devastating sales slump
    since last fall. Treasury is also working with General Motors to prepare
    a possible bankruptcy case, and the terms of a Chrysler filing might
    offer a glimpse into the shape of G.M.’s own filing.

    Some analysts questioned whether the Treasury’s steps to prepare a
    bankruptcy case were an effort to put more pressure on lenders, with
    which it has exchanged proposals meant to reduce Chrysler’s debt.
    Chrysler faces an April 30 deadline from the Treasury, while G.M. faces
    a June 1 deadline in its own efforts to draft a new restructuring plan.

    Under the most likely assumptions, Treasury will provide the financing
    that Chrysler needs to operate while under bankruptcy protection. The
    Canadian government is also expected to participate in backing the company.

    The Globe and Mail of Toronto reported the Canadian government’s role on
    Thursday.

    Last month, the Obama administration told Chrysler it would provide up
    to $6 billion in financing if Chrysler and Fiat could complete a deal by
    the end of this month. Fiat originally agreed to take 35 percent of
    Chrysler, but the stake was subsequently reduced to 20 percent. The
    administration said it would provide up to $6 billion in financing if
    the two companies agreed, on top of $4 billion in federal assistance
    that Chrysler has already received.

    Although the two companies have been holding discussions on an
    out-of-court agreement, a bankruptcy case would allow Fiat to more
    easily select the assets of Chrysler that it wants to preserve, such as
    dealerships, factories and the company’s product development operations,
    these people said. The approach, which relies upon Section 363 of the
    federal bankruptcy code, is somewhat similar to what the government is
    planning in the case of G,M..

    Then, Chrysler could sell or jettison any assets it does not want to
    keep, and cancel franchise agreements with superfluous car dealers.

    The U.A.W., Chrysler and Treasury have reached agreements in principle
    that would protect workers’ benefits, these people said, and a similar
    agreement is expected to be reached as soon as this weekend with the
    Canadian Auto Workers union.

    Once Chrysler emerges from bankruptcy protection, it would largely be
    owned by Fiat, the U.A.W., the Treasury and its lenders, these people said.

    Ron Gettelfinger, the U.A.W.’s president, issued a statement on
    Wednesday saying that the union was “continuing to work toward an
    agreement that will be in the best interest of Chrysler workers,
    retirees and the communities where the company does business.”

    People close to the talks said Wednesday that the U.A.W. had tentatively
    agreed to accept Chrysler stock to finance half of the company’s $10.6
    billion obligation to the health care trust. The balance would be paid
    in cash over the next decade. That money presumably could come from
    either the Treasury, or from Chrysler’s profits, once it emerges from
    bankruptcy protection.

    Chrysler has a $9.3 billion pension shortfall, or 34 percent of its
    total liability, according to the Pension Benefit Guaranty Corporation.
    The agency said earlier this month that it would assume $2 billion of
    the shortfall in the event Chrysler terminates its pension plans.

    If that happened, retirees would receive sharply lower benefits than
    they normally would expect. But Chrysler is not obligated to terminate
    its pension plans while in bankruptcy, particularly if it received
    federal assistance to fund them.

    It was not clear Thursday where Chrysler would file its bankruptcy case.
    On Wednesday, Mike Cox, the attorney general of Michigan, urged General
    Motors and Chrysler to consider filing in the state, rather than
    Delaware or New York. He said a locally administered case would be more
    convenient for creditors in Michigan.
     
    Jim Higgins, Apr 23, 2009
    #1
  2. Jim Higgins

    Bill Putney Guest

    Wow! And all along, after the bailouts, I thought the worst-case
    scenario was going to be having dumped all kinds of tax money into it,
    and their still having to declare bankruptcy for them to stay in
    business. Never did I imagine that there would be a
    worst-than-worst-case scenario of both those occurring *AND* their still
    being dragged to the ground with the existing union agreement mill stones.

    Just when you think the government couldn't make things worse than it
    already has, they put on their "thinking" caps and outdo themselves once
    again. Change you *can* believe in. Truly amazing.
     
    Bill Putney, Apr 23, 2009
    #2
  3. Jim Higgins

    MoPar Man Guest

    How would Chrysler be "largely owned" by Fiat, if Fiat gets only 20%?

    And why is there no mention of Daimler's current 19% stake in Chrysler?

    Is Daimler completely on the sidelines during this agonizing over
    Chrysler's future?

    Fiat isin't in great shape either. S&P recently downgraded Fiat shares
    to junk status, and Fiat reported it's first quarterly loss (Q1 2009)
    since 2004.

    It's being reported that the real loser will be Cerebus, who will likely
    see it's entire equity stake wiped out. "The bankruptcy will be of the
    ugliest in U.S. history". It will be a hint at what could be in store
    for GM.

    And a Chrysler merger with GM was supposed to be the solution ?!

    -----------------
    April 17

    Chrysler CEO Robert Nardelli confirmed in a letter to employees today
    that he will likely be replaced as CEO of the automaker in the coming
    weeks as the company faces either an alliance with Italian automaker
    Fiat or a bankruptcy reorganization or liquidation. The company’s board,
    too, would be replaced, he said.

    He disappointed at Home Depot and may soon have to step down from
    Chrysler. What's gone wrong for the former GE star?

    http://www.businessweek.com/magazin...chan=top+news_top+news+index+-+temp_top+story

    One of the great ironies of Nardelli's tenure is that though he billed
    himself as the plucky outsider waging war on Detroit myopia, his
    strategy differed only in degree from what the car guys have been doing
    for years: restructuring. Like his predecessors, he wasn't able to wring
    concessions from the unions fast enough. Instead, he saved money by
    paring white-collar ranks. His legacy is a Chrysler so hollowed out it
    may no longer be viable as a standalone company.
    ---------------

    http://www.freep.com/article/200904...hrysler+under+latest+scenario+proposed+by+U.S.

    Instead of Cerberus Capital Management and Daimler AG holding 80.1% and
    19.9%, respectively, of Chrysler LLC, there will be a larger cast.

    Under the latest scenario proposed by the U.S. government, Fiat SpA will
    have the largest block of Chrysler, at 20%. The remaining 80% will be
    allocated among a variety of secured creditors that include at least
    five banks and U.S. taxpayers.

    Cerberus and Daimler likely will hold much smaller stakes because they
    still hold loans that helped finance the August 2007 acquisition of the
    Auburn Hills-based automaker.

    Even the UAW could end up owning a piece of the company.

    There are three levels of Chrysler debt secured by such assets as
    manufacturing plants, equipment, vehicles, parts and real estate. The
    first level, valued by Chrysler at $6.9 billion, was borrowed from the
    banks. The second is $2 billion borrowed from Daimler ($1.5 billion) and
    Cerberus ($500 million). The third is the $4.3 billion in government
    loans committed in December and January.

    If Chrysler were to file for bankruptcy, the banks would be first in
    line to sell assets, followed by Cerberus and Daimler, and finally the
    federal government.

    "This is the worst possible time to be selling an auto plant," said
    Shelly Lombard, a credit analyst with Gimme Credit in New York.

    Fiat so far has not offered cash and has said it will not assume any
    current debt to partner with Chrysler. While Chrysler has valued Fiat's
    vehicles and powertrain technology at $8 billion to $10 billion, that
    won't likely satisfy the banks.

    "Fiat is in many ways a reasonable long-term solution," said Craig
    Fitzgerald of Plante & Moran. "The big question is will $6 billion more
    from taxpayers be enough to fund Chrysler's turnaround."

    The challenge with the UAW is to find a non-cash method to cover half of
    $10.6 billion Chrysler owes in 2010 to the Voluntary Employee
    Beneficiary Association, or VEBA, trust fund. The trust was created to
    cover health care insurance for UAW retirees.

    If Fiat doesn't offer cash or its own stock, Chrysler may offer the
    union stock in the new company. Such a deal would save $5.3 billion,
    which could be enough to satisfy Obama's demand for more concessions,
    and bring the UAW into partnership with banks, taxpayers, Cerberus and
    Fiat.
     
    MoPar Man, Apr 24, 2009
    #3
  4. The current owners of Chrysler, and that includes Daimler, would have
    their stakes mostly wiped out. Daimler wrote off their Chrysler stake
    last year so the bankruptcy filing won't have any material effects on
    their books, they've already taken the hit.
     
    General Schvantzkoph, Apr 26, 2009
    #4
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