Obama official says it'll get operating loans and a tie-up with Fiat
 | Email this article |
 | Print article |
 | Feedback |
(WASHINGTON) Chrysler will file for bankruptcy in New York and get as much as US$3.5 billion in operating loans from the US government while it finishes an agreement to align with Italian automaker Fiat, an official with President Barack Obama's administration said here yesterday.
Chrysler will be in bankruptcy for 1-2 months and GMAC LLC will become its new finance arm with a fresh infusion of capital from the government, the official said. The Auburn Hills, Michigan-based automaker will receive US$4.5 billion in exit financing, the official said.
Chrysler's bankruptcy filing will be made imminently and the court process will be used to extinguish some contracts and to thin the company's dealership body, the official said. Payments to auto parts makers and other contractors will continue to be made.
There will be no immediate plant closures or job cuts as a result of the bankruptcy filing. Chrysler will be sold to a new company created by the government using a provision of Chapter 11 of the US bankruptcy code.
The Canadian government will contribute a portion of the funding for Chrysler's so-called debtor-in-possession financing.
The Obama administration had long hoped to stave off bankruptcy for Chrysler, but it became clear that a holdout group wouldn't budge on proposals to reduce Chrysler's US$6.9 billion in secured debt, according to the officials, who spoke on condition of anonymity because the filing plans are not public.
  |
Clearing those debts was a needed step for Chrysler restructure by last night's deadline.
The developments come as Chrysler rival General Motors Corp is working on its own restructuring plan. GM's bondholders said yesterday they want a majority stake in a restructured GM in exchange for forgiving their claim to US$27 billion of that automaker's debt.
GM has proposed giving the US government a 50 per cent equity stake in exchange for about US$10 billion in loan forgiveness. GM faces a June 1 deadline to get a restructuring plan in place.
Along with the Fiat deal, the United Auto Workers (UAW) union ratified a cost-cutting pact on Wednesday night. The UAW agreement, which would take effect on May 4, meets Treasury requirements for continued loans to Chrysler Corp, and includes commitments from Fiat to manufacture a new small car in one of Chrysler's US facilities and to share key technology with Chrysler.
Treasury reached a deal earlier this week with four banks that hold the majority of Chrysler's debt in return for US$2 billion in cash.
But the administration said about 40 hedge funds that hold roughly 30 per cent of that debt also needed to sign on for the deal to go through. Those creditors said the proposal was unfair and were holding out for a better deal.
'While the administration was willing to give the holdout creditors a final opportunity to do the right thing, the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler's future success,' said one of the administration officials.
Meanwhile, the Fiat partnership means Chrysler CEO Robert Nardelli could be out of a job. In an April e-mail to employees, he said that if the deal is completed, Chrysler would be run by a new board appointed by the government and Fiat.
The new board, Mr Nardelli wrote, would pick a CEO 'with Fiat's concurrence'. Sergio Marchionne, CEO of the Italian automaker, told reporters last month that he could run Chrysler. -- Bloomberg, AP
No comments:
Post a Comment