U.S. Is Said to Prepare Filing for Chrysler Bankruptcy (NYT)

U.S. Is Said to Prepare Filing for Chrysler Bankruptcy
http://tinyurl.com/d4uhwj

DETROIT — The Treasury Department is preparing a Chapter 11 bankruptcy
filing for Chrysler that could come as soon as next week, people with
direct knowledge of the action said Thursday.

The Treasury has an agreement in principle with the United Automobile
Workers union, whose members’ pensions and retiree health care benefits
would be protected as a condition of the bankruptcy filing, said these
people, who asked for anonymity because they were not authorized to
discuss the case.

Moreover, Fiat of Italy would complete its alliance with Chrysler while
the company is under bankruptcy protection.

The only major question that remains unresolved is what happens to
Chrysler’s lenders, who hold $6.9 billion in company debt. The
government’s most recent offer, presented Wednesday, would give the
company’s lenders about 22 cents on the dollar, or $1.5 billion, and a 5
percent equity stake in a reorganized Chrysler. Earlier this week, a
steering committee of the lenders proposed that they receive 65 cents on
the dollar, or $4.5 billion, and a 40 percent equity stake.

Officials at Chrysler and the Treasury were not immediately available
for comment.

A bankruptcy filing by Chrysler would be the first among Detroit’s
troubled automakers, who have been mired in a devastating sales slump
since last fall. Treasury is also working with General Motors to prepare
a possible bankruptcy case, and the terms of a Chrysler filing might
offer a glimpse into the shape of G.M.’s own filing.

Some analysts questioned whether the Treasury’s steps to prepare a
bankruptcy case were an effort to put more pressure on lenders, with
which it has exchanged proposals meant to reduce Chrysler’s debt.
Chrysler faces an April 30 deadline from the Treasury, while G.M. faces
a June 1 deadline in its own efforts to draft a new restructuring plan.

Under the most likely assumptions, Treasury will provide the financing
that Chrysler needs to operate while under bankruptcy protection. The
Canadian government is also expected to participate in backing the company.

The Globe and Mail of Toronto reported the Canadian government’s role on
Thursday.

Last month, the Obama administration told Chrysler it would provide up
to $6 billion in financing if Chrysler and Fiat could complete a deal by
the end of this month. Fiat originally agreed to take 35 percent of
Chrysler, but the stake was subsequently reduced to 20 percent. The
administration said it would provide up to $6 billion in financing if
the two companies agreed, on top of $4 billion in federal assistance
that Chrysler has already received.

Although the two companies have been holding discussions on an
out-of-court agreement, a bankruptcy case would allow Fiat to more
easily select the assets of Chrysler that it wants to preserve, such as
dealerships, factories and the company’s product development operations,
these people said. The approach, which relies upon Section 363 of the
federal bankruptcy code, is somewhat similar to what the government is
planning in the case of G,M..

Then, Chrysler could sell or jettison any assets it does not want to
keep, and cancel franchise agreements with superfluous car dealers.

The U.A.W., Chrysler and Treasury have reached agreements in principle
that would protect workers’ benefits, these people said, and a similar
agreement is expected to be reached as soon as this weekend with the
Canadian Auto Workers union.

Once Chrysler emerges from bankruptcy protection, it would largely be
owned by Fiat, the U.A.W., the Treasury and its lenders, these people said.

Ron Gettelfinger, the U.A.W.’s president, issued a statement on
Wednesday saying that the union was “continuing to work toward an
agreement that will be in the best interest of Chrysler workers,
retirees and the communities where the company does business.”

People close to the talks said Wednesday that the U.A.W. had tentatively
agreed to accept Chrysler stock to finance half of the company’s $10.6
billion obligation to the health care trust. The balance would be paid
in cash over the next decade. That money presumably could come from
either the Treasury, or from Chrysler’s profits, once it emerges from
bankruptcy protection.

Chrysler has a $9.3 billion pension shortfall, or 34 percent of its
total liability, according to the Pension Benefit Guaranty Corporation.
The agency said earlier this month that it would assume $2 billion of
the shortfall in the event Chrysler terminates its pension plans.

If that happened, retirees would receive sharply lower benefits than
they normally would expect. But Chrysler is not obligated to terminate
its pension plans while in bankruptcy, particularly if it received
federal assistance to fund them.

It was not clear Thursday where Chrysler would file its bankruptcy case.
On Wednesday, Mike Cox, the attorney general of Michigan, urged General
Motors and Chrysler to consider filing in the state, rather than
Delaware or New York. He said a locally administered case would be more
convenient for creditors in Michigan.

 

Wow! And all along, after the bailouts, I thought the worst-case
scenario was going to be having dumped all kinds of tax money into it,
and their still having to declare bankruptcy for them to stay in
business. Never did I imagine that there would be a
worst-than-worst-case scenario of both those occurring *AND* their still
being dragged to the ground with the existing union agreement mill stones.

Just when you think the government couldn't make things worse than it
already has, they put on their "thinking" caps and outdo themselves once
again. Change you *can* believe in. Truly amazing.

 

How would Chrysler be "largely owned" by Fiat, if Fiat gets only 20%?

And why is there no mention of Daimler's current 19% stake in Chrysler?

Is Daimler completely on the sidelines during this agonizing over
Chrysler's future?

Fiat isin't in great shape either. S&P recently downgraded Fiat shares
to junk status, and Fiat reported it's first quarterly loss (Q1 2009)
since 2004.

It's being reported that the real loser will be Cerebus, who will likely
see it's entire equity stake wiped out. "The bankruptcy will be of the
ugliest in U.S. history". It will be a hint at what could be in store
for GM.

And a Chrysler merger with GM was supposed to be the solution ?!

-----------------
April 17

Chrysler CEO Robert Nardelli confirmed in a letter to employees today
that he will likely be replaced as CEO of the automaker in the coming
weeks as the company faces either an alliance with Italian automaker
Fiat or a bankruptcy reorganization or liquidation. The company’s board,
too, would be replaced, he said.

He disappointed at Home Depot and may soon have to step down from
Chrysler. What's gone wrong for the former GE star?

http://www.businessweek.com/magazin...chan=top+news_top+news+index+-+temp_top+story

One of the great ironies of Nardelli's tenure is that though he billed
himself as the plucky outsider waging war on Detroit myopia, his
strategy differed only in degree from what the car guys have been doing
for years: restructuring. Like his predecessors, he wasn't able to wring
concessions from the unions fast enough. Instead, he saved money by
paring white-collar ranks. His legacy is a Chrysler so hollowed out it
may no longer be viable as a standalone company.
---------------

http://www.freep.com/article/200904...hrysler+under+latest+scenario+proposed+by+U.S.

Instead of Cerberus Capital Management and Daimler AG holding 80.1% and
19.9%, respectively, of Chrysler LLC, there will be a larger cast.

Under the latest scenario proposed by the U.S. government, Fiat SpA will
have the largest block of Chrysler, at 20%. The remaining 80% will be
allocated among a variety of secured creditors that include at least
five banks and U.S. taxpayers.

Cerberus and Daimler likely will hold much smaller stakes because they
still hold loans that helped finance the August 2007 acquisition of the
Auburn Hills-based automaker.

Even the UAW could end up owning a piece of the company.

There are three levels of Chrysler debt secured by such assets as
manufacturing plants, equipment, vehicles, parts and real estate. The
first level, valued by Chrysler at $6.9 billion, was borrowed from the
banks. The second is $2 billion borrowed from Daimler ($1.5 billion) and
Cerberus ($500 million). The third is the $4.3 billion in government
loans committed in December and January.

If Chrysler were to file for bankruptcy, the banks would be first in
line to sell assets, followed by Cerberus and Daimler, and finally the
federal government.

"This is the worst possible time to be selling an auto plant," said
Shelly Lombard, a credit analyst with Gimme Credit in New York.

Fiat so far has not offered cash and has said it will not assume any
current debt to partner with Chrysler. While Chrysler has valued Fiat's
vehicles and powertrain technology at $8 billion to $10 billion, that
won't likely satisfy the banks.

"Fiat is in many ways a reasonable long-term solution," said Craig
Fitzgerald of Plante & Moran. "The big question is will $6 billion more
from taxpayers be enough to fund Chrysler's turnaround."

The challenge with the UAW is to find a non-cash method to cover half of
$10.6 billion Chrysler owes in 2010 to the Voluntary Employee
Beneficiary Association, or VEBA, trust fund. The trust was created to
cover health care insurance for UAW retirees.

If Fiat doesn't offer cash or its own stock, Chrysler may offer the
union stock in the new company. Such a deal would save $5.3 billion,
which could be enough to satisfy Obama's demand for more concessions,
and bring the UAW into partnership with banks, taxpayers, Cerberus and
Fiat.

 

The current owners of Chrysler, and that includes Daimler, would have
their stakes mostly wiped out. Daimler wrote off their Chrysler stake
last year so the bankruptcy filing won't have any material effects on
their books, they've already taken the hit.