Posted by: David Welch on April 24, 2009
With news reports pounding a loud drumbeat that a Chrysler bankruptcy is likely, the company’s top sales and marketing executives held a conference call with their dealers to quell the calamity. On the call, Sales and Marketing Vice President Steve Landry and Co-President James Press downplayed bankruptcy and said it wasn’t the inevitable option that some reports made it out to be. Press said there’s really nothing new, that Treasury was just getting the company ready in case Chrysler and the feds can’t convince their lenders to take a big haircut on the $7 billion in debt that is owed to them. “Nothing has changed,” dealers say Press said. “There is no new pending bankruptcy.” He told the dealers that the company just has to be prepared in case negotiations don’t bear fruit.
That may be true. But advisors representing the creditors say that some of the 50 or so financial institutions holding Chrysler debt aren’t happy with the way things are going. In fact, they say the gulf is pretty wide. They have been offered 22% on their debt plus 5% equity. The United Auto Workers are getting offered roughly 50 cents on the dollar for the $10 billion Chrysler owes them to set up a fund to pay retiree health benefits. They would get 20 to 30% equity in the company.
That has creditors chapped. See, they’re secured creditors. In bankruptcy, they stand in front of the union’s claims. So the lenders are scratching their heads and wondering why they should take less when they might get a better deal than the union in bankruptcy court. “The government is trying to rewrite bankruptcy law,” bemoaned one attorney working for a Chrysler lender. All of this will be kicked around in talks over the next week with a May 1 deadline looming. On the call with dealers, Press said Chrysler had people in Washington today. Talks are expected to go over the weekend. It’s going to be a tough set of talks.