Chrysler’s lenders agree to debt swap/Union poised to own 55% of Chrysler

Chrysler’s lenders agree to debt swap
By Tom Braithwaite in Washington and John Reed in London
Copyright The Financial Times Limited 2009
Published: April 28 2009 16:26 | Last updated: April 28 2009 17:57
http://www.ft.com/cms/s/0/8f8b2730-3406-11de-9eea-00144feabdc0.html


Chrysler, the failing US carmaker, moved towards viability on Tuesday after the Obama administration’s auto task force extracted deep concessions from holders of its $6.9bn debt.

The four principal lenders, holders of about 70 per cent of the debt, agreed that it should be swapped for $2bn in cash, paving the way for a new Chrysler, with much reduced debt and costs and part-owned by Fiat, the Italian carmaker.

Two Fiat executives told the Financial Times on Tuesday that they expected the Italian carmaker to sign a partnership with Chrysler on April 30, the US government’s deadline to agree on a restructuring deal with the union and creditors and agree an alliance with Fiat. A separate person familiar with the talks said he was “cautiously optimistic” that a deal would be agreed with Fiat.

But bankruptcy remains an option for the company, with the aim of forcing agreement from any smaller banks and hedge funds resistant to the debt alleviation, which was agreed with JPMorgan Chase, Goldman Sachs, Morgan Stanley and Citigroup. Bankruptcy could also be used to shed other liabilities, such as cutting dealer networks.

”The agreement from Chrysler’s principal banks is an exceptional accomplishment in line with the president’s firm commitment that all stakeholders sacrifice to make this deal succeed,” said an administration official.

A majority equity stake in Chrysler will be held by the United Auto Workers union and a separate employee healthcare trust. Fiat will own up to 35 per cent of the company, with the US government potentially owning a minority stake, according to a union document sent to workers.

People familiar with the talks said there were implications from the Chrysler deal for talks with General Motors and its debtholders and workers, although they said there was little chance of a better offer to bondholders than this week’s offer of 10 per cent of the new company’s equity in return for cancelling $27bn in debt.

One person familiar with the talks said there was “no tilt or slant to any one stakeholder” but said: “Banks are an important part of this company but they are not going to be ongoing participants or stakeholders.”

“We need workers to come to work every day and if we try to impose a set of arrangements on the UAW or any other group of workers at any company in a reorganisation that the workers view as unacceptable or unsatisfactory they have a very clear alternative which is to say ‘we’re not coming to work anymore’.”

The GM talks will soon step up a gear when Chrysler’s fate is decided this week. GM has a later May 30 deadline to reach a deal.




Union poised to own 55% of Chrysler
By John Reed in London
Copyright The Financial Times Limited 2009
Published: April 28 2009 18:27 | Last updated: April 28 2009 18:27
http://www.ft.com/cms/s/0/be80a37c-3419-11de-9eea-00144feabdc0.html


The United Auto Workers’ union will own 55 per cent of Chrysler and Italy’s Fiat will eventually own 35 per cent of the carmaker after a balance sheet restructuring, with remaining stock split between Chrysler’s secured lenders and the US federal government, according to a UAW document sent to members on Tuesday.

This came amid some signs that the ailing US carmaker, Fiat, the unions, and Chrysler’s creditors were inching toward agreements that would allow the US’s smallest domestic carmaker to avoid a bankruptcy filing ahead of a Thursday deadline.

The UAW document, which outlines modifications to the union’s 2007 labour contract with Chrysler and an addendum to its healthcare agreement, said Fiat’s investment in the carmaker’s operations and new US jobs would exceed $8bn.

Two Fiat executives told the Financial Times on Tuesday that they expected the Italian carmaker to sign a partnership with Chrysler on April 30, the US government’s deadline to agree on a restructuring deal with the union and creditors and agree an alliance with Fiat.

The Italian group has said that it will invest know-how and equipment, but no cash into its partnership with Chrysler. Bob Nardelli, the US carmaker’s chief executive, said in a video presentation last month that the technology to be provided by Fiat was worth $8bn to $10bn.

The UAW agreement was approved by the union’s leadership on Monday and sent for ratification on Tuesday to the union’s local representatives, where it must secure majority approval.

Under the agreement, Chrysler would cut by half its contribution to the employee healthcare fund to contributing a note with a principal amount of $4.587bn.

The UAW’s healthcare fund would have the right to name a member of Chrysler’s board and receive 55 per cent of shares in the transformed company.

A US Treasury-led task force overseeing the restructuring of Chrysler and General Motors is still working to close differences with holders of Chrysler’s $6.9bn first-lien debt, led by JP Morgan, to swap most of their loans for equity in Chrysler.

On Monday evening Germany’s Daimler, Chrysler and private equity group Cerberus – the carmaker’s majority owners – announced a deal that would see Daimler dispose of its 19.9 per cent shareholding and pay $600m into Chrysler’s pension plans over the next three years.

Daimler also agreed to forgive repayment of previous loans extended to Chrysler, and said the payments – to be made in 2009 to 2011, would have a $700m impact on its second-quarter earnings.

Referring to the agreement with the German group in an email to Chrysler employees sent on Tuesday morning, Mr Nardelli said: “This agreement facilitates our proposed alliance with Fiat and represents another step on our road to meeting US government requirements by the April 30 deadline.”