Report: Chrysler Bankruptcy Eyed Amid Debt Talks

The Treasury Department has made a new offer to Chrysler LLC's lenders, asking banks and hedge funds that hold $6.9 billion in debt to forgive $5.4 billion and take a 5 percent stake in a Chrysler-Fiat alliance, according to two people familiar with the matter.

The offer was made to the group late Tuesday, these people said. The people asked not to be named because the negotiations are private.

But The New York Times reported on its Web site Thursday that the Treasury is preparing a Chapter 11 bankruptcy filing for Chrysler that could come as soon as next week. Some analysts questioned whether the Treasury's steps to prepare a bankruptcy case were an effort to put more pressure on Chrysler's lenders, according to the Times.

A U.S. official dismissed the Times report. "In a negotiation like this, everything is speculation until there's a deal. It should surprise no one that the administration is planning on contingencies, but we remain focused on the goal and engaged with all stakeholders to bring Chrysler and Fiat to a working partnership," the official told Reuters.

The Treasury's debt-for-equity proposal is in response to the lenders' offer earlier this week to forgive $4.5 billion in Chrysler debt in exchange for a 40 percent stake in the alliance. An administration official confirmed the offer. A Chrysler spokeswoman declined to comment.

The Treasury is negotiating with lenders 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.

The Auburn Hills, Mich., automaker is living on $4 billion in federal loans and could get $500 million more in working capital to survive through April. But without massive restructuring and a deal with Fiat, Chrysler won't get any more aid, government officials have said.

The Obama administration is offering an additional $6 billion to Chrysler if it meets the April 30 deadline. If it fails, government aid will end and Chrysler will most likely face liquidation.

On Thursday, Fiat Chief Executive Sergio Marchionne said he remains committed to a deal with Chrysler, though he said he could not assess the likelihood that the deal will go through. He also reiterated that Fiat will not put in cash of its own for the deal. Chrysler's creditors have asked Fiat to put in $1 billion.

From staff and wire reports

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