Chrysler Corp.'s major creditors have agreed to accept $750 million in preferred Chrysler stock, substantially reducing the foundering automakers's future debts, in a last-minute attempt to meet the terms of a federal loan guarantee, informed sources said yesterday.
The concession by the several hundred banks with claims against Chrysler involves interest payments which the company would have to make after 1983.
In agreeing to accept stock instead of interest payments under certain conditions, the banks are improving Chrysler's chances of survival in the mid-1980s.
"If they can survive the next 12 months, it's not a bad deal," said one investment banker close to the negotiations.
Treasury Secretary G. William Miller, head of the government's Chrylser loan guarantee board, and other Treasury officials pressed the banks to make the concession -- a major change in the initial financing plan arranged by Chrysler and its creditors.
The loan board has been meeting this week in hopes of approving the pieces of the financial aid plan for Chrysler. The company has been required by Congress to obtain $1.43 billion in private assistance and $587,000 in employe wage concessions in order to qualify for $1.5 billion in federally guaranteed loans.
A dispute between Chrysler and the Canadian government has so far blocked approval of the loan guarantee. Federal and provincial governments are willing to give Chrysler $200 million in aid but only if Chrysler pledges not to close down its assembly lines there. This Chrysler is unwilling to do.
Miller told reporters yesterday the board would not meet until Monday at the earliest. "We're down to really waiting for terms on the Chrysler-Canada negotiations," he said. "We need that piece of the puzzle."
Chrysler's immediate cash needs were eased considerably Wednesday by a $150 million loan from the state of Michigan, secured by a mortgage on the company's modernized engine plant in Trenton, Mich. Chrysler also received $62.5 million from the sale of its remaining interest in its Australian auto subsidiary to Mitsubishi Motors Corp.
Lee A. Iococca, Chrysler's chairman, called it "a banner day."
Another potential threat to the loan agreement has arisen, centered on the role of Chrysler's banks and other creditors.
Intent on seeing Chrysler's creditors share the risks of the bail-out plan, Congress specified that new loans and credits from banks should be part of the $1.43 billion in private aid.
But the banks and other creditors, already holding $601 million in claims against Chrysler, refused to dig deeper. Instead, they agreed to defer and waive $680 million in interest payments on existing debt between now and 1983.
This was much less of a risk since, if Chrysler folded, the creditors wouldn't receive their interest claims anyway, industry sources noted.
The proposed financial plan, including the interest concessions, was announced two weeks ago.
Yesterday it came under attack from several Senate critics of the Chrysler bail-out, who complained the congressional conditions had not been met.
Sen. William Proxmire (D-Wis.) wrote to Miller and the loan board yesterday, saying the agreement "appeared to violate the letter and spirit of the law" approving the loan guarantees.
In addition to the bank's policy on interest concessions, their unwillingness to extend some $245 million in previously approved credit to Chrysler also angered Proxmire, aides said.
Sen. Henry Bellmon (R-Okla.) also protested the loan agreement in a letter to Miller Wednesday.He warned that if the loan plan didn't meet the congressional conditions, Congress was unlikely to appropriate the $1.5 billion to back the loan guarantee.
Although Congress last December agreed to guarantee the $1.5 billion in new private bank loans to Chrysler, it hasn't yet appropriated the federal funds that make up the guarantee.
Without that appropriation, lenders are likely to impose a 3 to 4 percentage point interest premium on the loan, an extra burden Chrysler would like to avoid.
However, industry sources said the intent of the new Treasury plan, involving the swap of preferred stock for interest claims, is meant to meet congressional criticism of the April financing plan.
Under the April plan, the banks would have received new notes covering the interest payments they agreed to waive. Now, the new plan will replace the notes with stock, reducing Chrysler's long-term debt and increasing the banks' investment in the auto company.
The change will strengthen a finding by the loan board that Chrysler can be a viable company in the future -- a determination the loan board must make before it can approve the federal guarantees.