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Chrysler's Lenders Make New Offer on Debt

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Wall Street Journal

Chrysler's Lenders Make New Offer on Debt

DETROIT—Chrysler LLC's secured lenders are working on a second offer to the Treasury Department to cut the car maker's debt that moves them about $750 million closer to the government's last proposal, according to peole familiar with the matter, as the sides enter the final week of bargaining over the auto maker's fate.

The lending group has proposed cutting the $6.9 billion Chrysler owes them down to $3.75 billion, according to a person familiar with the offer. Previously, the lenders had proposed cutting Chrysler's debt to $4.5 billion.

The terms of the offer remained in flux as the lenders discussed the changes with Treasury officials, and could change. A formal offer is likely to come later Friday, the people said.

The creditors also dropped their request for $1 billion of preferred stock in Chrysler and that Fiat SpA put $1 billion of cash into Chrysler as part of an alliance between the car makers, the people said.

Striking an agreement with Chrysler's lenders is a key element in the government's restructuring of the company. The government is moving toward a Chapter 11 bankruptcy process that would allow the car maker to shed some liabilities.

The government has struck agreements with the United Auto Workers union as part of the plan, but the lenders potentially could disrupt a bankruptcy process if an agreement with them hasn't been reached.

The government has set an April 30 deadline to determine the auto maker's fate and has said Chrysler could be liquidated if deals with the banks and Fiat are not reached by then. Chrysler declined to comment.

Under the current plan, Chrysler would file for bankruptcy protection, allowing Fiat to pick and choose which operations it wants, according to people familiar with the situation. The U.S. government would provide bankruptcy financing for the reorganization.

The new offer from the creditors still leaves them far apart from the government's latest offer, which proposed the lenders trim what they are owed to $1.5 billion and receive a 5% stake in Chrysler.

In making their case for a significantly smaller sacrifice than what the government wants, the lenders have argued that their fiduciary duty to their own shareholders and investors requires them to recoup as much as possible from the car maker. The lenders have told Treasury officials they believe they could recover at least 65% of their loans if Chrysler is liquidated in bankruptcy.

The steering committee of banks that made the counterproposal has eight members. The largest bank-debt holders are J.P. Morgan, Citigroup, Goldman Sachs Group Inc. and Morgan Stanley. The four hold about $4.3 billion of the debt, said people familiar with the matter.

Also on the committee are hedge fund Elliott Management, distressed-asset investor Stairway Capital Management, fund manager OppenheimerFunds and advisory and asset-management firm Perella Weinberg Partners. In all, an estimated 45 lenders and funds hold the Chrysler bank debt.

Meantime Friday, Chrysler Vice Chairman Jim Press told the company's dealers that it is facing "no pending bankruptcy," according to three people who listened in on a conference call the executive made with the dealers.

Mr. Press told dealers that nothing will be announced prior to late next week, when the latest federal deadline imposed on the company hits.

Mr. Press added that "nothing has changed" in regard to Chrysler's plans to restructure outside of bankruptcy court and forge an alliance with Fiat, those people said.

Mr. Press did hedge his bet on bankruptcy, however. He told dealers that if concessions cannot be obtained from all parties involved in the talks, bankruptcy may be necessary, the people on the call said. A Chrysler spokesperson could not immediately be reached for comment.

In the brief morning call, Mr. Press asked dealers to stay focused on selling vehicles. He also told dealers that April sales will lag behind those of other car makers, but that dealer inventory levels continue to decline.

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