Chrysler creditors reject Washington’s debt proposals

Chrysler creditors reject Washington’s debt proposals
By Francesco Guerrera, Nicole Bullock and Julie MacIntosh in New York and Tom Braithwaite in Washington
Copyright The Financial Times Limited 2009
Published: April 22 2009 00:59 | Last updated: April 22 2009 00:59
http://www.ft.com/cms/s/0/6cc9619a-2ece-11de-b7d3-00144feabdc0.html


Chrysler creditors, led by JPMorgan Chase and Citigroup, on Tuesday rebuffed a US government request to forgive the bulk of their debt holdings, in a move that will prolong the stand-off over the future of the troubled carmaker.

In its counter-offer to the government, the creditors, which hold $6.9bn in Chrysler’s debt, rejected the Obama administration’s demand they forego the repayment of $5.8bn of debt to stave off a bankruptcy, people close to the situation said.

Instead, the lenders proposed reducing their debt to about $4.5bn and taking a stake of about $1bn in preferred equity in Chrysler following its planned alliance with the Italian carmarker Fiat. People close to the lenders said the $1bn stake could be worth about 40 per cent of the company but the exact percentage is unclear because the lenders, Chrysler management and the government disagree on the valuation of the carmaker.

An Obama administration official said: “It is neither in the interest of Chrysler’s senior lenders nor the country for them to advance a proposal that would yield them an unjustified return ... Our hope and expectation is that these lenders take a more constructive position.”

The creditors’ proposal followed days of discussions among the banks. The government has given Chrysler a deadline of April 30 to seal its alliance with Fiat and clinch separate deals with unions and debt holders.

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Kip Penniman, credit analyst at KDP Investment Advisors, said: “These negotiations will likely go back and forth until 11:59 on April 30.”

The creditor group, which includes JPMorgan, Citi, Goldman Sachs, Morgan Stanley and several hedge funds, declined to comment.

The decision by the banks, many of which have received government aid, to rebuff the administration’s plan could stir controversy on Capitol Hill.

Gary Peters, a Democratic representative for the carmaker’s home state of Michigan, on Tuesday called the banks’ counter-offer “an affront to taxpayers”.

“It is extremely disappointing that while other stakeholders have agreed to work with President Obama to advance Chrysler’s restructuring, financial institutions that have already taken billions of dollars in taxpayer support are refusing to do the same,” he said in a statement.