Bankers Rebuff Treasury’s Request on Chrysler Debt

A group of the U.S.’s biggest banks, apparently angered by the demands made by car czar Steven Rattner, who wanted the banks to forgive Chrysler billions it owed them in exchange for nothing, rebuffed today a Treasury Dept. request that they slash 85% of automaker’s secured debt, proposing instead to eliminate about 35% in exchange for a minority stake in the restructured auto maker.

From WSJ: Chrysler owes the lenders, which include banks such as Citigroup Inc. and J.P. Morgan Chase & Co., about $6.9 billion. But President Barack Obama and his auto team had demanded that the banks cut that to $1 billion, while gaining no equity stake in a restructured Chrysler.

In their five-page counteroffer, the lenders said they are prepared to cut Chrysler’s first-lien debt by $2.4 billion, or down to about $4.5 billion, in exchange for a minority equity stake, likely to be to 40%.
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In making their case for a significantly smaller sacrifice than what the government wants, the lenders have argued that their fiduciary duty to their own shareholders and investors requires them to recoup as much as possible from Chrysler. The lenders have told Treasury officials that, if necessary, they could recover at least 65% of their loans to the company if it is liquidated in bankruptcy.

Chrysler has until April 30 to seal an alliance with Italy’s automaker Fiat SpA and avoid liquidation.

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