U.S. Reaches Deal With Chrysler Banks, People Say

U.S. Reaches Deal With Chrysler Banks, People Say


April 28 (Bloomberg) -- Chrysler LLC’s largest banks reached a tentative agreement with the U.S. government to exchange $6.9 billion in secured debt for $2 billion in cash, according to three people with knowledge of the negotiations.

A Chrysler bankruptcy remains a possibility, said one of the people, who didn’t want to be identified discussing the private talks. All of the automaker’s 46 lenders must ratify the terms, which isn’t likely, the person said. A quick type of bankruptcy may be needed to bring any dissenters into an agreement, according to the person.

A debt deal is one of the steps Chrysler needs to form an alliance with Fiat SpA and avoid being forced into court protection after April 30. The Auburn Hills, Michigan-based automaker is under a government deadline to keep $4 billion in loans and get as much as $6 billion in additional federal aid.

“It’s surprising,” Scott Eisenberg of Amherst Partners LLC, a Birmingham, Michigan-based restructuring firm, said of the tentative agreement. “Everyone looked at it as a huge, huge uphill battle. The alternative for everyone was less attractive. When people’s backs are against the wall, they will negotiate a settlement.”

The Treasury Department was negotiating on Chrysler’s behalf yesterday with JPMorgan Chase & Co., Goldman Sachs Group Inc., Citigroup Inc. and Morgan Stanley, which hold about 70 percent of the third-largest U.S. automaker’s secured debt, the people said. Other lenders also would have to approve the deal.

Those four banks, Elliott Management Corp., Stairway Capital, Perella Weinberg Partners and Oppenheimer Funds are on the lenders’ steering committee.

‘Exceptional Accomplishment’

“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 official in President Barack Obama’s administration, who asked not to be identified.

The accord is among “important steps to assure that we get a workable deal between Chrysler and Fiat,” said Obama’s press secretary, Robert Gibbs. “We still have some ways to go.”

Shawn Morgan, a Chrysler spokeswoman, wouldn’t comment. Jenni Engebretsen, a Treasury spokeswoman, didn’t respond to telephone and e-mail messages. Representatives of the banks and other lenders declined to comment.

‘Real Money’

In a Chapter 11 bankruptcy, creditors that represent more than two-thirds of the debt can approve plans without unanimous consent from the holdouts, said Don Workman, a bankruptcy lawyer at Baker & Hostetler LLP in Washington. If some of the lenders balk to try to get a better recovery, they could be forced into a less favorable deal and legal fees, he said.

“You are talking about some real money here,” Workman said. “It would be difficult to walk away from this and force it into bankruptcy. It’s hard to believe you could get that much better of a recovery, but you possibly could.”

Chrysler still must complete its alliance with Turin, Italy-based Fiat, under the terms set by the U.S. for continued aid. Chrysler and Fiat have an agreement in principle that’s conditioned on the U.S. automaker meeting the Treasury’s other conditions, which include accords with the lenders and unions.

Gualberto Ranieri, a Fiat spokesman, didn’t respond to an e-mail seeking comment.

Chrysler in the past week has gotten money-saving accords with the United Auto Workers and Canadian Auto Workers unions. Cerberus Capital Management LP, which has owned 80.1 percent of Chrysler, reached an agreement yesterday under which Daimler AG will cede the remaining 19.9 percent of the U.S. automaker.

Under the accord reached with the UAW on April 26, a health-care trust fund for union retirees would own 55 percent of Chrysler, people familiar with the agreement said. Fiat would get an initial 20 percent stake, which may rise to 35 percent by meeting performance goals.

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