Chrysler Corp. said yesterday banks and other major creditors have reached preliminary agreement on hopes will meet a key requirement of the federal recovery plan.
The money represents interest payments on existing Chrysler debt that lenders are willing to waive or defer, rather than new loans, said Chrysler vice president Wendell W. Larsen, the company's chief spokesman.
It was not clear whether this approach will satisfy the Treasury and the government's loan guarantee board, supervising the recovery plan. Treasury officials said they had not seen the detail of the $650 million agreement.
"If what they're talking about is real money, there probably won't be a problem," said a Senate aide following the Chrysler situation.
The recovery plan approved by Congress called on banks and other Chrysler creditors to waive $100 million in interest on current Chrysler debt, while also providing $550 million in new loans or credit.
These contributions by some 175 U.S. and foreign banks would be the core of the private aid Chrysler is expected to arrange to quality for $1.5 billion in federal loan guarantees.
Rising interest rates have made it possible for the banks to reach the full $650 million target through interest-rate concessions, rather than new money, company officials noted.
Chrysler officials said the agreement does not deal with a major lack of consensus between the company and its lenders over the future of Chrysler Financial Corporation, a subsidiary that provided financing for nearly two-thirds of the company's U.S. automotive sales last year.
Chrysler has been negotiating the sale of a 30 percent share of Chrysler Finance to Household Finance Corp., but the banks want the auto maker to sell a majority interest, or 51 percent. The issue remains unresolved, the company said. A sale of the larger share would easily meet the government's requirement that Chrysler raise $300 million by disposing of assets.
Details of the preliminary agreement are not expected to be disclosed for a week or more, after it has been approved by all the U.S. and foreign banks involved. The agreement was reached by Chrysler and some 40 or 50 representatives of banks and creditors holding a majority of the Chrysler debt who have been meeting in Chrysler's Manhattan offices.
The meetings between Chrysler and its creditors had accelerated last week, in hopes that an agreement could be reached in time for hearings before the Senate Banking Committee scheduled for Monday and yesterday. The hearings were abruptly cancelled to avoid complicating the negotiations but by then there was enough momentum to achieve the agreement, sources said.
The efforts to put together the recovery plan are proceeding amid growing concern over the company's prospects. It warned recently that its losses this year may reach $650 million instead of the $500 million originally estimated, as the nation's economic slump batters car sales.