The Treasury has started to sweeten terms for Chrysler creditors in an attempt to keep the car company out of Chapter 11.
According to The Wall Street Journal, “The Treasury now proposes that the banks and other lenders accept as payment 22% of the $6.9 billion they are owed plus a 5% equity stake in Chrysler.” A previous offer would have given them payments of 15% and no stock.
The new proposal may be a better offer for Chrysler bondholders, but it may be so good that GM (GM) creditors will look for something just as attractive. News reports have said that the No.1 US car company is proposing that its creditors and the UAW take GM stock in exchange for all of the firm’s obligations to them.
The two sets of negotiations show why the government rescue of the car companies is dragging on. Every time GM makes an offer to unions and creditors to keep it out of bankruptcy court, Chrysler’s negotiations pause as all of the parties in its talks look at the relative pluses and minuses of the GM proposals. Every Chrysler move evokes the same reaction from the groups working on saving GM.
All of the effort by creditors and the UAW to make sure that they get the best deals, and equal deals, from GM and Chrysler will drag the bargaining well beyond government deadlines for the restructurings to be done by early June. Because a a Chapter 11 filing by either company could take months, it is likely that the Treasury will fork out more money to buy time for a negotiated settlement.
The entire process could take until Labor Day.
Douglas A. McIntyre
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