Banks Want Chrysler to Pay Higher Portion of Its Debt
Wednesday, April 22, 2009
A group of Chrysler's largest creditors has offered to reduce the company's debt obligations by 35 percent in exchange for an equity stake in the automaker, a source familiar with the matter said.
The latest offer is still far less than what the government had called for as part of the concessions it said the American automaker needed to qualify for additional federal loans. The administration has pushed the creditors to reduce the $6.9 billion in debt they're owed by 85 percent, or down to $1 billion. The creditors, who include some of the nation's largest banks, balked at that offer because it did not give them an equity stake in Chrysler.
The Obama administration is pressing the company to complete a merger with the Italian automaker Fiat and negotiate further stakeholder concessions by month's end. On Monday, Treasury Department officials met with Chrysler chief executive Robert L. Nardelli, Fiat chief executive Sergio Marchionne and UAW president Ron Gettelfinger, the source said.
The new counteroffer would give Chrysler's creditors about a 40 percent stake in the automaker, the source said. Lenders are also asking that Fiat put $1 billion into Chrysler in exchange for the stake it would get in the company as part of the proposed partnership.
The offer is intended to address a chief complaint of some creditors: that they are being asked to make concessions, while Fiat is getting "the deal of the century," said a source within the creditors group. The sources spoke on the condition of anonymity because negotiations are ongoing.
"We believe that this arrangement is much more equitable," the source said.
Under the terms of the proposed alliance, Fiat would receive an initial 20 percent stake in Chrysler in exchange for giving Chrysler access to its small-car technologies and distribution network. Nardelli has said he places the value of Fiat's technical expertise at $8 billion to $10 billion.
Fiat spokesman Tom Johnson declined to comment.
An administration official dismissed the counteroffer, saying it would give the creditors an "unjustified return."
"Our hope and expectation is that these lenders take a more constructive position in the coming days that reflects the actual situation that they and the company face," the official said.
Rep. Gary Peters (D-Mich.), whose district is home to Chrysler's Auburn Hills headquarters, said "this is not a serious counteroffer," given that Chrysler's four largest banks lenders are recipients of funds from the Treasury's financial rescue plan and their debt is trading at around 15 cents on the dollar.
"These debt holders were offered fair-market value for their debt, and the banks have responded by asking for a windfall," Peters said in a statement.
Chrysler, which has received $4 billion in federal loans, could get an additional $500 million to sustain operations during its restructuring, according to a report filed yesterday by Treasury's special inspector general.