REPORT: Chrysler headed into bankruptcy as debt talks fail
by Frank Filipponio on Apr 30th 2009 at 10:00AM 
It looks like the concessions and government intervention aren't going to be enough to keep Chrysler out of bankruptcy. The AP is reporting that talks between Chrysler's lenders and the Treasury Department have broken down, meaning the company will not be able to reduce its $6.9 billion in secured debt. That debt reduction was seen as one of the last pieces of the puzzle in keeping Chrysler out of bankruptcy following the union concessions that had been made earlier this week.
Although the four banks that hold 70 percent of Chrysler's debt had agreed to wipe it off the books for a cool $2 billion, the snag came from the remaining 30 percent of the debt which is held by 46 hedge funds. Although the government had added an additional $250 million to the debt cancellation cause, the hedge funds apparently felt they could do better.
The groups had been given a deadline of 6PM Wednesday to settle the matter, but that deadline has passed. The Treasury Department decided to end talks around midnight because there was no central authority, and bargaining with 46 funds was too much.
There is still a midnight deadline today, but it is believed President Obama will allow Chrysler to go into bankruptcy protection, with a judge determining how much creditors will get. Chrysler would continue to operate, however, likely with Fiat leadership. It is widely believed that Fiat CEO Sergio Marchionne will replace Chrysler CEO Robert Nardelli.
[Source: AP via CBS News Image Source: Bill Pugliano/Getty]
Reader Comments (Page 1 of 1)
Jim 10:30AM (4/30/2009)
Greedy hedge funds - I hope they get shafted by the bankruptcy judge.
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Throwback 10:50AM (4/30/2009)
If you can get 100% of your money why take 20%? The hedge fund debt is probably covered by Credit Default Swaps. The hedge fund managers have a fiduciary responsibility to their investors, not tax payers. That is the government's responsibility, this should have happened in 2008. We have bankruptcy laws/courst for a reason, it is where failing companies go for one last chance, not the government.
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Rahul 11:11AM (4/30/2009)
Chrysler is finally going to Italy with Fiat. Doe a handful get to decide what happens to big corporations. But what is the US government doing? I hope General Motors does not dissolve into bankruptcy.
Rahul
Indian Car Advisor (Carazoo.com)
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Throwback 11:30AM (4/30/2009)
When you borrow money, your creditors decided how/if/when they get paid back. The government should never have given Chrysler tax payer money.
Aaron 5:46PM (4/30/2009)
I'm pretty @#$@#$# @#$#ed off that Chrysler has received billions in bailouts and is now going into bankruptcy only to be bought up by a foreign company. All with Obama's OK.
All these greedy SOBs are in this together and are taking us for a ride. I wasn't going to buy a Chrysler-made vehicle before and I'll definitely never buy one again. Same with GM. F 'em all.
Trying to blame this on the company's creditor's is just a put-off to deflect blame. They're protecting their interests as they see fit. If they take a loss from the bankruptcy, they can use the government's own tax laws to write it off and clear the full amount rather than take some b.s. deal to reduce the debt and lose money.
I sometimes wonder if I'm the only one who sees that, at the core of it, big government is always to blame for our ills. They are are happy to step in, blame someone else, and "fix" the problem with more problems. That's for sure.
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KM 9:04PM (4/30/2009)
Hedge funds may have a fiduciary obligation to their share holders but the damage caused by the collapse of Chrysler to the US may have far reaching implications that would hurt the country's interests and the wider economy in... well suffice to say many many ways. Frankly if I was organizing the dissolution of Chrysler as the government I would use any means necessary to both force the hedge funds to cooperate as well as punish those that don't. There are national interests at stake, as well as real people's livelihoods and retirements. This is not a numbers game on a piece of paper.
That said, I'd argue that this situation proves the case for more regulation and more protectionism of US interests. It's time we stopped allowing a small minority of folks in the financial industries free reign to export US wealth while lining their own pockets. I suspect I'm not the only one thinking that too. Some of the debtholders for Chrysler wouldn't even exist now if it were not for the largesse of the American taxpayer.
The issue will eventually come to people arguing over their values - some will claim free market capitalism is "good" and "right", and companies need to be allowed to fail. And some will claim that domestic interests are "just" and "proper" and need to be protected and markets regulated. And eventually, we'll be asked to vote.
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Evelyn Guzman 12:23PM (5/01/2009)
What a shame that despite all the concessions the workers made and the banks agreeing to help out and the government upping the ante to sweeten the deal with the hedge funds, the talk still broke down. The hedge funds could have made concessions themselves to save the jobs of thousands of people but I guess as in the word of another author, they were greedy enough to hold Chrysler hostage and all the ramifications therein.
Evelyn Guzman
http://www.debtchallenges.com (If you want to visit, just click but if it doesn’t work, copy and paste it onto your browser.)
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Dave 5:46PM (5/01/2009)
only a fool would buy a Chrysler, Dodge or Jeep vehicle with the bankruptcy going on and all the plants shut down
save yourself some pain and buy another brand - probably should avoid GM too since they may be in the same boat in June.
Obama says the feds will back up the warranties - what a joke! There are millions of Chrysler/Dodge/Jeep cars out there and it will take possibly thousands of trained people in hundreds of locations to do the work backed up by tens of thousands of parts or even more. Obama has no idea what he is talking about here.
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