Chrysler creditors offer to slash debt

Chrysler creditors offer to slash debt
By Nicole Bullock and Francesco Guerrera in New York and John Reed in London
Copyright The Financial Times Limited 2009
Published: April 25 2009 00:00 | Last updated: April 25 2009 00:00
http://www.ft.com/cms/s/0/1b935476-3120-11de-8196-00144feabdc0.html


Chrysler senior creditors, led by JPMorgan and Citigroup, have offered to cut the debt they are owed nearly in half to $3.75bn, inching closer to the demands of the US Treasury to restructure the ailing carmarker, people familiar with the situation said.

The Obama administration insists Chrysler extract concessions from its lenders and the unions as well as form an alliance with Fiat by next Thursday to avoid bankruptcy.

With days left, there is still a wide gap between the concessions sought by the government and the losses that creditors are prepared to take, but people involved said momentum was building for an agreement.

In the latest offer, creditors also dropped a previous demand that Fiat contribute cash to a proposed alliance with Chrysler, but they still want a 40 per cent stake in the company, the people said.

Sergio Marchionne, Fiat’s chief, reacted angrily to a top European official’s assertion that the Italian carmaker’s debt load might prevent it from financing deals with both Chrysler and Opel.

Fiat, which is rushing to finalise a partnership with Chrysler this week even as it eyes the possibility of buying a stake in General Motors’ European arm, also said it had made “no offer” to acquire Opel.

Mr Marchionne said that he was “astounded by the tone and content” of remarks made by Günther Verheugen, the European Union’s industry commissioner.

Mr Verheugen told Bavarian radio on Friday: “Fiat is not the European automaker that is doing the best at the moment.

“I ask myself where this indebted company will get the means to support two such operations at the same time,” he said.

Mr Marchionne said that Mr Verheugen’s comments were “not helpful to the ultimate goal of re-establishing a sound footing on which to build the future of this industry”.

The offer from Chrysler creditors on Friday is the latest in a string of back-and-forth proposals as the two parties negotiate this month against mounting fears that Chrysler could be destined for bankruptcy.

Originally, the US government called on senior creditors to forgive $5.8bn of the $6.9bn they are owed.

This week, creditors countered by saying they would reduce what they were owed to $4.5bn.

The government then softened its stance somewhat asking creditors to take $1.5bn in exchange for 5 per cent of the company.

The latest offer would value the debt at 54 cents on the dollar.

In trading, the loans are quoted in the mid-20s, but creditors, who have a top priority claim in bankruptcy, have argued that they could recover much more if Chrysler’s assets were liquidated.