It all comes down to bondholders of $6.9 billion in debt. Chrysler LLC, in the latest version of its restructuring plan, wants to give them $2 billion in cash and shares in a restructured company.
Bondholders are balking, though, and it apparently requires the agreement of almost all of the 46 financial institutions and hedge funds that hold its virtually worthless debt at current trading prices to prevent a bankruptcy.
Chrysler, late yesterday, reached a tentative agreement to an equity swap with its four largest banks that hold 70% of its debt. But it isn’t clear, if that is enough to force the 42 others to fold. As of this evening, Chrysler was still waiting to hear if it will be forced into bankruptcy tomorrow by the U.S. Treasury Department Auto Task Force.
Neither the President and Vice President would confirm a bankruptcy today, and the Treasury Department appears to be using the uncertainty, and media leaks about getting reading for a filing, as a cudgel to force the bondholders to relent.
“I am very pleased that principal banks have reached a deal with Chrysler to restructure the company’s debt so it can achieve viability. A month ago when I first wrote to the CEOs of Chrysler’s major debtholders they were not even at the table, so this is a very positive development,” said Rep. Gary Peters (D-Michigan), who has been prodding the banks to negotiate with Chrysler. “The remaining debt holders should understand that this deal is better than what they could expect in bankruptcy and I encourage them to accept this fair offer,” he said.
All the other pieces of the restructuring are basically in place. The Canadian Auto Workers Union and the United Auto Workers Union have cut their labor and benefit costs. By accepting stock for its health care fund, the UAW will end up with 55% of the new company, if ratification of the revised agreement by members comes through tonight as expected.
The U.S. taxpayer by way of the Treasury Department has lent $4 billion to Chrysler and $6 billion more is offered to get the new company through the global Great Recession.
Fiat Spa is ready to go ahead with a deal that gives it an initial 20% stake in the new Chrysler. Unspecified performance goals from Treasury would then increase Fiat’s stake to 35%, with an option for Fiat to purchase control, after the new Chrysler pays back the $10 billion in U.S. aid.
Daimler Ag has given up its stock in Chrysler LLC and settled pension and loan agreements. Gone and likely quickly forgotten is DaimlerChrysler AG, born 1998, died 2007, when Cerberus Capital Management LP bought 80%. Cerberus took the balance from Daimler AG this week and is willing to give it all to Treasury to get from under its disastrous investment in automaking.
So is it deadline met or Chrysler dead? Wall Street, once again, will determine the fate of Main Street America.