Tim Geithner, U.S. Treasury Secretary, is flatly rejecting a new proposal by Chrysler debt holders.
“A more constructive position” is needed on the part of Chrysler LLC’s lenders, the U.S. Treasury Department is saying, in response to a proposal by banks, private equity firms and others who hold $6.9 billion in the automaker’s debt – and who could be the final obstacle to a deal that saves Chrysler from bankruptcy.
Late last month, President Barack Obama gave the flailing automaker 30 days to pull its financial house in order and complete a strategic alliance with its Italian white knight, Fiat SpA, otherwise Chrysler would be forced to file for court protection. Few believe the U.S. maker would be able to emerge from bankruptcy and would most likely be broken up and sold in pieces.
To meet the White House mandate, and to win over Fiat CEO Sergio Marchione, Chrysler needs to complete a number of steps that include winning new concessions from its workers – both in the U.S. and Canada – and restructuring its heavy debt load.
Negotiators for the various lenders earlier this week proposed a complex agreement that would allow them to continue to hold $4.5 billion in secured debt, give them $1 billion in preferred equity in the new company formed by an alliance with Fiat, and another 40% of that company’s common shares. Industry sources say the lenders also demanded a $1 billion investment by Fiat which, until now, had expected to gain a 35% or larger stake in Chrysler for no up-front cash. (more…)