
One month ago Chrysler was given until today to restructure all of its debt and merge with Fiat. This was not to be the case. President Obama announced that Chrysler will move to file for bankruptcy shortly. It is expected the process will be swift and surgical with a new Chrysler emerging within 30 to 60 days.
Some of Chrysler’s bondholders had refused to accept the government’s offer of $2 billion in cash, or an even higher $2.25 billion in exchange for $6.9 billion in debt. The union had agreed to its concessions.
As such the Auto Task Force will move Chrysler into bankruptcy court where the lenders will be forced to accept the $2 billion.
Chrysler will operate while in bankruptcy using $3.5 billion in government funds. Upon emergence Fiat will take a 20% stake that may rise as milestones are met, and the government will provide up to $4.7 billion in loans to the new Chrysler.
GMAC will operate as Chrysler’s financial arm as Chrysler Financial has been deemed unviable, and will be given additional funds to do so. The government will warranty all Chrysler purchases during this period. Chrysler will operate as usual with no job cuts. In the end, the Union will own 55% of Chrysler, Fiat will own 20%, and the government the rest.
GM has been given until June 1st to restructure all of its debt and produce other changes to achieve viability. Obivously Chrysler’s process will serve as a warning to GM’s debtholders.
Those debtholders have already balked at a proposed 10% stake in the new GM in exchange for equity. The have counterproposed getting a 58% stake in exchange for their $29 billion in outstanding bonds. The union would get 41% and shareholders 1%.
Source (Detroit Free Press)



