Tentative Deal Could Save Chrysler The Treasury Department has reportedly reached a tentative agreement with four of Chrysler's major debt-holders. It is reported that the four banks will forgo claims to the $6.9 billion worth of Chrysler debt they hold in exchange for $2 billion in cash when the deal closes.
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Tentative Deal Could Save Chrysler

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Tentative Deal Could Save Chrysler

Tentative Deal Could Save Chrysler

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MICHELE NORRIS, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Michele Norris.

ROBERT SIEGEL, host:

And I'm Robert Siegel. A surprise out of Detroit today in the tentative agreement brokered by the Treasury Department, four of Chrysler's largest creditors say they'll take $2 billion in cash and forgive the rest of the automaker's debt. As Michigan Radio's Tracy Samilton reports the development makes it more likely that Chrysler can avoid bankruptcy.

Ms. TRACY SAMILTON (Reporter, Michigan Radio): A lot of people thought the deal wouldn't happen. Virtually all of Chrysler's $7 billion debt is secured. That means creditors can force the company to sell its assets in bankruptcy and hand over the money. John Wolkonowicz is an analyst with IHS Global Insight. He thinks it was smart for the government to offer straight cash instead of a combination of cash and stock.

Mr. JOHN WOLKONOWICZ (Analyst, IHS Global Insight): There's no equity involved. The equity is risky particularly in the case of Chrysler. This is take the money and run. That's kind of a good deal.

Ms. SAMILTON: These creditors probably thought it was a good deal especially when compared to the alternative. Doug Bernstein is a bankruptcy attorney with Plunkett Clooney in Detroit.

Mr. DOUGLAS BERNSTEIN (Attorney, Plunkett Clooney): They would have an analysis done as to what they can reasonably expect to receive in a liquidation.

Ms. SAMILTON: That expectation was probably pretty low. Very few automakers have the cash to buy pieces of a defunct competitor, so a Chrysler liquidation would be a fire sale. And Bernstein says many of Chrysler's creditors accepted federal bailout money themselves.

Mr. BERNSTEIN: So who knows what pressure may have been exerted by the government on them to reach an agreement short of bankruptcy.

Ms. SAMILTON: Still, Chrysler remains in the hot seat as the Treasury Department tries to persuade nearly 50 banks and hedge funds that hold bond debt to go along. While bankruptcy is still a possibility, today's tentative agreement makes it a bit less likely. Analyst John Wolkonowicz says he's pleased not just for Chrysler but for the sake of its bigger cousin GM.

Mr. WOLKONOWICZ: The way that the government is behaving with Chrysler, I think that they will seek an agreement out of bankruptcy for GM right to the eleventh hour.

Ms. SAMILTON: General Motors has until June 1st to reduce its bondholder debt. Chrysler's deadline is only two days away. Before then the company must get the rest of its bondholders to cut a deal and it has to sign a partnership agreement with Fiat. If not, then the government could force Chrysler to file for bankruptcy protection.

For NPR News, I'm Tracy Samilton in Ann Arbor.

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