- The Washington Times - Tuesday, April 14, 2009

DETROIT (AP) - Banks and other lenders that hold $6.9 billion in secured Chrysler LLC debt are preparing a counteroffer after they rejected Chrysler and the government’s plan to erase the loans for $1 billion, according to a person briefed on the negotiations.

The lenders are likely to ask for more than the initial offer of 15 cents on the dollar, the person said Tuesday. They also are likely to seek equity in the company so they can benefit if Chrysler forges an alliance with Italian automaker Fiat Group SpA and becomes profitable again, said the person, who spoke on condition of anonymity because the talks are private.

The counteroffer from a lenders’ steering committee could come by the end of the week, the person said.

Chrysler is living on $4 billion in government loans and has been given until April 30 to gain concessions from its lenders and unions and reach a definitive deal with Fiat. If it can’t complete the tasks by the deadline, the government says it will provide no more aid, almost certainly sending Chrysler into liquidation.

The Auburn Hills, Mich., automaker has been talking with Fiat about giving the Italian automaker an initial 20 percent stake in Chrysler in exchange for Fiat’s small-car and fuel-efficiency technology. Fiat’s share would grow when certain milestones are met, but it will not take on any of Chrysler’s debt.

First-lien lenders represented by the steering committee include Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley and several smaller banks, plus some hedge funds. Chrysler has about 45 first-lien lenders who would be first in line to get money if the company’s assets were liquidated, according to the person familiar with the negotiations.

First-lien lenders generally get more than 15 percent when a company is liquidated through bankruptcy courts, but the lenders would rather get a larger payment for their debt plus equity, the person said.

Standard & Poor’s ratings services last week cut the rating on Chrysler’s first-lien debt to “CC” from “CCC” and said lenders can expect a 30 percent to 50 percent recovery if the automaker defaults on the loans.

“We expect a bankruptcy filing to occur around the end of April or soon thereafter if the company is not successful in reaching an agreement on a partnership with Fiat SpA and concessions with its main labor union and secured lenders,” analyst Greg Maddock wrote in a note to investors. “We believe that if the company filed for Chapter 11 bankruptcy protection, many of its assets and operations would be sold in discrete transactions over time, while other segments may be closed.”

A Treasury Department spokeswoman declined to comment on the negotiations, and a message was left for a Chrysler spokeswoman.

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