The Treasury Department is preparing a Chapter 11 bankruptcy filing for struggling U.S. automaker Chrysler that could come as soon as next week, according to a New York Times report.
People with direct knowledge of the action told the newspaper that the U.S. 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.
Fiat of Italy would complete its alliance with Chrysler while the company is under bankruptcy protection, the paper said, but the problem of Chrysler’s lenders remains unresolved.
The government has offered Chrysler’s lenders, who hold $6.9 billion in company debt, about 22 cents on the dollar, or $1.5 billion, and a 5 percent equity stake in a reorganized Chrysler. But earlier this week the lenders proposed that they receive 65 cents on the dollar, or $4.5 billion, and a 40 percent equity stake, the paper said.
If no agreement is reached between the government and the automaker’s lenders a legal fight could follow. The lenders could lay claim to the company’s collateral, including plants, brands and equipment, even ahead of the government, the Times said.
A senior source at the Treasury told NBC Thursday afternoon that the New York Times report is “speculation” until a deal is done, adding that “all contingencies” are being planned for the automaker, adding that just because the administration is preparing for bankruptcy it doesn’t mean that’s the path it will ultimately take.
In late March the Obama administration gave Chrysler one month to reach an agreement for an alliance with Italy’s Fiat, a reduction in secured debt and resolution of labor issues with its unions. Both Chrysler and General Motors are surviving on billions of dollars of taxpayer money.
President Obama said the turnaround plans that the automakers presented to Congress earlier this year hadn’t gone far enough. He gave Chrysler one last chance to turn its operations around, raising the threat that he might force the company into a quick, managed bankruptcy if that proves to be the fastest way to restore it to health.
(Source: MSNBC)
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A better headline was have said that the federal government is proposing a formula for bankruptcy, which probably would require a constitutional amendment since the creditors already have a secured claim to most of the assets and have the right to force the sale of the assets to the highest bidder, and then give the “change” to other creditors (such as the employees who are getting stiffed). A president has no authority to “offer” anything, and that isn’t what he is doing. THe administration is offering to facilitate a bankruptcy on what set of terms, which might under certain conditions make it worthwhile for the creditors (whose forced breakup of the assets might produce less money than a structured bankruptcy).
And we all so fervently wish that “akuperma”, obviously a self-satisfied gas bag of a lawyer, would stop trying to impress up with all the great stuff he learned in law school.