With Chrysler's deadline to complete a deal with Italian automaker Fiat rapidly approaching, bondholders offered a counterproposal Friday that would cut the company's debt to $3.5 billion, says a source.
The source, who was briefed on the matter but does not want to be named because the discussions are not public, said the bondholders have dropped their request for preferred stock in the company and that Fiat make cash investments into the company. But bondholders still want to take a 40% equity stake in Chrysler, which would give the loose group of debt holders a larger share in the company than former parent Daimler.
The government has said Chrysler needs to cut its debt from $6.9 billion to $1 billion, and slashing the debt is a significant hurdle that needs to be cleared before the Fiat deal can finalize.
The bondholders committee, which is made up of representatives from Citigroup, Elliott Management, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Oppenheimer Funds, Perella Weinberg Partners Xerion Funds, and Stairway Capital Management, already have a lien on virtually all of Chrysler's assets, they said in an earlier proposal obtained by USA TODAY.
They argued the proposal to slash debt from $6.9 billion to $1 billion "is unfair, as lenders stand to lose $5.9 billion in principal and $1.3 billion in interest, with zero upside," they wrote. "Attempting to force lenders to take billions in losses undermines other important government sponsored rehabilitation programs — and of course lenders' ability to support the auto industry."
Chrysler is existing on a $4 billion loan from the government, and could get up to $500 million more in the coming days just to stay alive. Last month, President Obama rejected the automaker's request for billions more in additional loans, saying the automaker could not survive without a partner. Chrysler has until May 1 to finalize a partnership, or it could end up filing for bankruptcy.
The Canadian Auto Workers union said Friday it is close to a cost-cutting deal with Chrysler, and one of the people said the company also is nearing an agreement with the United Auto Workers in the U.S.
Under that deal, the union would take equity in the company for part of the $10.1 billion Chrysler must pay into a union-run trust that will take over retiree health care costs starting next year. Due to the size of the investment, the UAW could become the automaker's biggest shareholder.
Contributing: Associated Press