It looks like Chrysler is headed into chapter 11

http://www.nytimes.com/2009/04/24/business/24chrysler.html?_r=3




U.S. Is Said to Prepare Filing for Chrysler Bankruptcy

By MICHELINE MAYNARD and MICHAEL J. de la MERCED
Published: April 23, 2009

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.

Micheline Maynard reported from Detroit and Michael J. de la Merced from New York. Bill Vlasic contributed reporting.

 

R.I.P.

 

Whats good for GM is good for America!

isn't that true! ;-))

And while this BK proceedings going on, the banks are wrestling US GOVT for bigger payout


http://baselinescenario.com/2009/04/22/the-missed-opportunity/#more-3415

The Missed Opportunity

For a snapshot of what’s wrong with our banking policy, look at the front page of the business section of today’s New York Times. On the left side: “U.S. in Standoff with Banks over Chrysler.” On the right side: “Banks Show Clout on Legislation to Help Consumers.”

On the left side, a consortium of banks holding Chrysler debt is refusing to agree to the current restructuring plan, which involves bondholders holding $6.9 billion in secured debt getting about 15 cents on the dollar - roughly where the bonds are currently trading, according to the Times.* The banks are playing the ongoing game of chicken with the government, betting that the government will cave and give them a better deal rather than take a risk on a bankruptcy.

On the right side, the banks are using their lobbying clout to block the administration’s proposals to help consumers and households, including the mortgage cram-down provision (which would allow bankruptcy courts to modify mortgages on first homes) and added consumer protections for credit card customers. They currently have all 41 Republican votes in the Senate tied up, which means nothing can pass.

The banks leading the charge over Chrysler: JPMorgan Chase and Citigroup. The banks opposed to cram-downs: Bank of America, JPMorgan Chase and Wells Fargo. The banks blocking credit card protections: American Express, Bank of America, Capital One Financial, Citigroup, Discover Financial Services, and JPMorgan Chase. All or almost all are bailout beneficiaries. But don’t blame them: they’re just doing what they can to maximize their profits at the expense of the taxpayer, which is perfectly legal (and even ethical, depending on your conception of shareholder rights). Instead, you should be wondering why they are in a position to be maximizing profits at the taxpayer’s expense.

If you’re Tim Geithner or Barack Obama, you’re probably thinking that now would be a nice time to have a controlling interest in these banks so they would stop blocking your efforts to help the rest of the economy. But the government has consistently bent over backward to avoid gaining control over the banks. It began with Henry Paulson (Bush administration) taking non-convertible, non-voting preferred shares last October; it continued with the Citigroup and Bank of America bailouts in November and January (during the transition period), in which the banks got underpriced asset insurance in exchange for more non-voting shares; and it peaked in the third Citigroup bailout in February, when the Obama administration insisted on forcing other investors to convert preferred shares into common, precisely to avoid getting a majority stake.

If the government had simply accepted the ordinary consequences of its actions - majority ownership - it would at least not have to plead for favors from Citigroup and Bank of America, who desperately needed help on any terms the government chose to dictate. Arguably JPMorgan and Wells are in a different situation, since the government was never in a position to buy a majority stake, and they are claiming they only took TARP money as an act of patriotic solidarity. But leaving aside TARP capital, the government has gone to extraordinary lengths to protect the financial system - guarantees on money market funds, increased guarantees on deposits, guarantees on bank debt, massive programs to lend against or purchase securities, not to mention the AIG bailout conduit - without which none of these banks would be in a position to make a profit. Yet it has left the banks in a position to capture the entire surplus from its actions, without getting the kind of concessions that would come in handy now.

Now, there is an ideological position that says that the government should stay out of the private sector, even to the point of making it more difficult for that very same government to achieve its legitimate policy objectives. This is a coherent position, though not one I agree with; it’s basically the “keep government weak” philosophy. I would just be surprised to hear that Geithner and Obama are in that camp.

By James Kwak

 

I really thought the administration was bluffing with a GM bankruptcy to negotiate better terms with labor and bond holders. Missing the 1B debt payment pretty much is the final nail in the coffin for GM and its dealer network. Unless prices are discounted below cost, why buy a vehicle from bankrupt GM with a Ford and Toyota dealership right next door? If this recession/depression continues into the next decade as some predict, Ford will eventually absorb what's left of GM in the chapter 7 liquidation.