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Chrysler to File for Chapter 11

Posted on 30 Apr 2009

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After failing to convince all of its lenders to agree to a debt-reduction deal, an official with the Obama administration said that Chrysler LLC will file for a Chapter 11 bankruptcy.

Early Thursday an administration official said the restructuring of Chrysler LLC will go forward evener though a handful of hedge funds have refused to accept the Treasury Department's offer to cut the auto maker's debt.

"Their failure to act in either their own economic interest or the national interest does not diminish the accomplishments" by Chrysler, its planned alliance partner Fiat SpA and other stakeholders in the company, the official said, "nor will it impede the new opportunity Chrysler now has to restructure and emerge stronger going forward."

The administration's auto task force tried to get all 46 of Chrysler's secured lenders to agree to a debt-reduction deal until talks broke down late Wednesday. President Obama is expected to announce that Chrysler is now going to seek reorganization in bankruptcy court.

"After a month of tireless negotiations, the administration went into yesterday afternoon with the full support of Chrysler's key stakeholders, including the UAW and the largest creditors," the administration official said. "That support remains."

Some of the largest banks agreed to take $2 billion in cash in exchange for giving up $6.9 billion in secured debt. On Wednesday that auto task force increased the offer to $2.25 billion, but a few of the creditors rejected that.

"While the administration was willing to give the holdout creditors a final opportunity to do the right thing, the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler's future success," the official said.

Administration officials, who have been braced for a Chrysler bankruptcy filing for weeks, say all the pieces are in place to get the company through the court quickly, perhaps in a matter of weeks.