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Last-ditch effort made to salvage Chrysler
By Stephen Manning |
May 4, 2009, Monday
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AFTER months of negotiations, billions of dollars in federal loans and a slew of agreements that will likely radically reshape Chrysler, efforts to restructure the company outside of courts stumbled just a day before a government imposed deadline for Chrysler to restructure itself. Without Chrysler's debt holders in agreement, the government task force felt compelled to set in motion plans for a bankruptcy filing.
United States President Barack Obama was briefed on the breakdown in negotiations on Wednesday evening, just after a press conference in which he told the nation he still held out hope for solving Chrysler's problems without bankruptcy.At that point, he made the decision to go ahead with a Chapter 11 filing, according to a senior administration official familiar with the talks who described the process on condition of anonymity because details of the talks have not been made public.
"He was pretty comfortable saying, 'Okay, we are moving forward,' " the official said.
Under deals brokered by the task force, Italian auto maker Fiat will get a large share of the company; Chrysler will get US$8 billion more in government aid; the United Auto Workers will get an ownership stake; and the Auburn Hills, Michigan-based company will be restructured by a New York bankruptcy court.
The Obama administration had been skeptical that it could convince all of Chrysler's creditors to forgive the auto maker's debt. Even after four banks that held 70 percent of Chrysler's debt agreed to the deal, senior officials said it appeared unlikely the remainder would agree.
The last-minute negotiations were funneled through JP Morgan, one of the four banks already in agreement. With time running out, the Treasury raised its offer from US$2 billion in cash to US$2.25 billion.
A group of about 20 that held US$1 billion of secured Chrysler debt still wanted far more than the government was willing to give.
Tom Lauria, a bankruptcy lawyer who handled the negotiations for the group, said the group considered the offer of around 29 US cents for each dollar unfair.
Lauria said the group countered with 50 US cents on the dollar, but "nobody would talk to us" about the offer.
Some creditors didn't even get the government's new terms until after the deadline, Lauria said, while others faced intense pressure from the administration to sign on.
After the deadline passed, the US$2.25 billion deal was off the table.
"It was hardball," Lauria said on Friday.
The administration official said allegations of coercing creditors were "utterly false." And the offer of 50 US cents would have been more than double the amount the four banks, which held most of Chrysler's debt, agreed to.
United States President Barack Obama was briefed on the breakdown in negotiations on Wednesday evening, just after a press conference in which he told the nation he still held out hope for solving Chrysler's problems without bankruptcy.At that point, he made the decision to go ahead with a Chapter 11 filing, according to a senior administration official familiar with the talks who described the process on condition of anonymity because details of the talks have not been made public.
"He was pretty comfortable saying, 'Okay, we are moving forward,' " the official said.
Under deals brokered by the task force, Italian auto maker Fiat will get a large share of the company; Chrysler will get US$8 billion more in government aid; the United Auto Workers will get an ownership stake; and the Auburn Hills, Michigan-based company will be restructured by a New York bankruptcy court.
The Obama administration had been skeptical that it could convince all of Chrysler's creditors to forgive the auto maker's debt. Even after four banks that held 70 percent of Chrysler's debt agreed to the deal, senior officials said it appeared unlikely the remainder would agree.
The last-minute negotiations were funneled through JP Morgan, one of the four banks already in agreement. With time running out, the Treasury raised its offer from US$2 billion in cash to US$2.25 billion.
A group of about 20 that held US$1 billion of secured Chrysler debt still wanted far more than the government was willing to give.
Tom Lauria, a bankruptcy lawyer who handled the negotiations for the group, said the group considered the offer of around 29 US cents for each dollar unfair.
Lauria said the group countered with 50 US cents on the dollar, but "nobody would talk to us" about the offer.
Some creditors didn't even get the government's new terms until after the deadline, Lauria said, while others faced intense pressure from the administration to sign on.
After the deadline passed, the US$2.25 billion deal was off the table.
"It was hardball," Lauria said on Friday.
The administration official said allegations of coercing creditors were "utterly false." And the offer of 50 US cents would have been more than double the amount the four banks, which held most of Chrysler's debt, agreed to.
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