The U.S. Treasury is expected to make a new debt restructuring offer to Chrysler's first-lien lenders as soon as Monday in the wake of cost-cutting deals the struggling automaker won with unions, people briefed on the negotiations said on Sunday.
Chrysler's lenders are owed $6.9 billion in secured loans that stem from the 2007 deal that spun off a majority stake in the No. 3 U.S. automaker from Germany's Daimler AG.
Chrysler, now 80-percent owned by Cerberus Capital Management, faces a deadline of later this week to wrap up concessionary deals with its unions and creditors and to close an alliance with Italy's Fiat SpA in order to win continued financial support from the U.S. government.
A committee of Chrysler's lenders including JPMorgan Chase & Co, Goldman Sachs Group Inc, Morgan Stanley and Citigroup Inc last week proposed taking $3.75 billion in debt and a 40-percent equity stake in a restructured company.
In response, Treasury offered the Chrysler lenders $1.5 billion in first-lien debt and a 5 percent equity stake in a restructured company. The latest terms of the Obama administration's offer were not immediately known, according to the people who spoke about the confidential discussions on condition that they not be named.
A Treasury spokesman could not be immediately reached for comment.
HURDLES
The talks on restructuring Chrysler's debt are one of the last hurdles U.S. officials have identified in steering the automaker through a restructuring that would put it under the operational control of Fiat Chief Executive Sergio Marchionne.
Late Sunday, Chrysler and the United Auto Workers union announced that the two sides had reached a tentative agreement on new contract terms to bring down factory wage and benefit costs and to restructure the $10.6 billion the automaker owes a union trust fund for retiree healthcare.
Terms of the tentative contract, which will go to Chrysler's UAW-represented workers for ratification by Wednesday, were not immediately available.
Chrysler had previously said union leadership had agreed to concessions that would bring its average hourly wage rate to near $49 in the United States, on par with the factories run by Japanese "transplants" led by Toyota Motor Corp.
The UAW had also been under pressure to accept stock in a merged Chrysler-Fiat in exchange for about $5 billion of the amount it is still owed for the healthcare fund.
The just-announced UAW deal seems certain to increase the pressure on Chrysler's lenders in the run up to the April 30 government-imposed deadline for talks between all the parties.
The tentative deal between Chrysler and the UAW to change the terms of the company's remaining pledge to the trust fund has a direct bearing on the terms that Chrysler's secured lenders will likely be willing to accept, according to one of the people with knowledge of the talks.
Although the UAW would be an unsecured creditor in a Chrysler bankruptcy and junior to the first-lien debt, lenders have become concerned that U.S. officials were acting to favor the union with a larger payout, the person said.
Those concerns were reinforced on Saturday when Michigan Gov. Jennifer Granholm and members of the state's congressional delegation used a party fundraiser to pile on the political pressure to Chrysler lenders to make new concessions.
About 45 institutions, including some hedge funds, now own Chrysler debt. Over $4 billion of the total is still held by the major banks led by JP Morgan, people familiar with the matter have said.
Chrysler's lenders want to avoid a liquidation of the automaker in bankruptcy that would be damaging for all of the interests in its restructuring, including the U.S. agency that would have to assume its pension obligations, the person said.
But if the Obama administration's revised offer to the creditors represents a lesser payout than what has been offered to the UAW, a majority of lenders is likely to reject those terms, the person said.
