Chrysler offered debt-for-equity swap

April 22, 2009|Associated Press

DETROIT - Banks and hedge funds that hold $6.9 billion in Chrysler LLC debt have proposed forgiving $2.5 billion of it in exchange for about a 40 percent stake a Chrysler-Fiat alliance, according to two people briefed on the proposal.

One of the people said the lenders delivered their counterproposal to Chrysler and the Treasury Department late Monday. Neither person would be identified because the negotiations are private.

The lenders also want Fiat to invest $1 billion cash in Chrysler, and they want to appoint one person to the company's board, the Associated Press has learned.

The counteroffer comes as Chrysler races to meet a government-imposed April 30 deadline to swap debt for equity, cut labor costs, and negotiate an alliance with Italy's Fiat Group SpA. If it misses the deadline, government aid will end and Chrysler likely faces liquidation. Last week, creditors rejected a Treasury Department offer to reduce the debt to $1 billion, absolving Chrysler of about 85 percent of its secured loans. The counteroffer falls short of government restructuring goals that called for Chrysler to retire at least two-thirds of its debt.

Spokeswomen for Treasury and Chrysler declined to comment.