Task Force Refines Bankruptcy Plan for Chrysler
Saturday, April 25, 2009
The Obama administration's autos task force is racing to complete a bankruptcy plan for Chrysler by Monday after the company's creditors -- a fractious collection of 45 banks, hedge funds and financial firms -- balked at a deal to keep the automaker out of court.
The storied American automaker owes $6.9 billion to the creditors, who have opposed the government's demands that they trade most of their loan claims for a small stake in the company.
The Obama administration will send Chrysler into bankruptcy proceedings if the company and its lenders fail to reach an agreement by May 1, though it would prefer to settle the matter out of court, sources said.
So far, the Treasury and the creditors are far apart, a source said.
It would take "a miracle" to get the sides together by the deadline, said a source. The sources spoke on condition of anonymity because of the sensitivity of the talks.
As a result, by the end of next week, the automaker founded by Walter P. Chrysler in 1925 may be propelled into liquidation or rescued in a complex deal involving taxpayer money, concessions from the union and company lenders, and a partial merger with Italy's Fiat.
For the company's 54,000 employees and thousands of suppliers around the country, the anxiety is rising.
"The worst-case scenario is if they file for bankruptcy," said Greg Goodnight, mayor of Kokomo, Ind., which is home to four company plants that each employ 5,000, down from 7,000 in Chrysler's heyday. "Chrysler is a big employer here."
The autos task force is expected to negotiate with its stakeholders through the weekend, seeking to strike a new financial framework that would allow Chrysler to live on in the proposed takeover by Fiat.
At the same time, however, the task force is preparing for the bankruptcy proceeding that could become necessary if negotiations fail.
If bankruptcy becomes inevitable, the government team is leaning toward a "prepackaged" arrangement, a form that requires some agreement from the stakeholders before the court filing. That strategy would limit the time the company languishes in bankruptcy.
In court, a judge could swiftly force any of the company's recalcitrant stakeholders to take losses.