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Chrysler Lenders Expected to Counter Treasury

Chrysler
CNBC.com
Chrysler

The senior lenders to Chrysler are planning to make a counteroffer to the Treasury Department this week, pushing back on a debt-reduction plan they say is too coercive, people briefed on the matter said Monday.

The Treasury Department has asked these lenders, which consist of banks and hedge funds, to reduce their $6.9 billion in debt holdings to about $1 billion. The goal is to help preserve Chrysler’s financial viability as it pursues a merger with Fiat, the Italian carmaker.

The banks contend the Treasury’s plan offers no concessions in exchange for a nearly 86 percent reduction in the value of their holdings. A steering committee of eight of these firms is now deciding whether to ask for equity in a combined Chrysler-Fiat, one of these people said.

The Obama administration has given Chrysler until April 30 to reach a deal with Fiat. Its auto task force is preparing for the possibility the company will not succeed and be forced into bankruptcy protection and, potentially, liquidation.

Representatives for Treasury and the bank group declined to comment.

Any attempt to restructure Chrysler is far more dependent on winning the support of the lenders than similar efforts to reorganize General Motors. The sale of Chrysler to Cerberus Capital Management in 2007 added a mountain of debt, much of which is secured by assets of the carmaker, like plants and brands.

Should Chrysler be forced to liquidate, these senior secured lenders would have claims on the assets. Bondholders in G.M. hold unsecured debt, and would likely be crushed if it were pushed into bankruptcy.

The Treasury Department did not give the creditors’ committee information about the data underpinning its proposal until late Sunday night, these people said. Included were many of the numbers behind the government’s assumptions, as well as information about what a Chrysler-Fiat deal would look like.

Among the major complaints by the creditors’ committee is that, unlike in the negotiations with G.M. creditors, these firms are not being offered any upside in exchange for cutting their debt, one of the people briefed on the matter said. G.M. bondholders were previously offered a combination of cash, stock and new debt in exchange for cuts to the value of their holdings.

The lenders’ steering committee had consisted of four major banks — JPMorgan Chase, Citigroup, Goldman Sachs and Morgan Stanley — and Elliott Management, a hedge fund. The group has been expanded to include Oppenheimer, Stairway Capital Management and Perella Weinberg Partners.