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Thursday, April 30, 2009

Chrysler to file Chapter 11

It is reported that Chrysler will enter Chapter 11 bankruptcy, today. So is the deal over. Probably not. Fiat intends to join forces with Chrysler even if it files for bankruptcy. Fiat Chief Executive Officer Sergio Marchionne is in Washington today.

Here's some details:

As of yesterday the final piece of the alliance deal was to have the smaller lenders of Chrysler sign on to a deal crafted by the Obama administration. The deal offered was to have these debt holders take a $2.25 billion buyout in cash in exchange for forgiving Chrysler's debt, These smaller lenders, about 40-46 small banks and hedge funds, are owed about 25% of Chrysler $6.9 billion in debt.

Well that deal fell through last night. It looks like Chapter 11 Bankruptcy will be announced today.

If the company files for bankruptcy, however, U.S. and Canadian governments would still provide about $4 billion with 80 percent from United States.

The plan would be for Chrysler to go through a quick bankruptcy, possibly concluded in a matter of a few weeks, where Chrysler's best assets would be sold to a new company to pay off the debts to creditors who didn't take the governments proposal.

This new company would be a "New Chrysler" with all the best assets. Fiat would then sign an alliance with this healthy company, initially taking a reported 20% stake and then rising to 35% once certain government criteria is met. This new company would be managed by Fiat.

The other owners of this new Fiat/Chrysler company would be a retiree health care trust fund at 55% and the remainder held by the government and creditors with specific percentages not available at the time of this posting.

This is all pretty preliminary so we'll have to wait until the end of the day to see if this is the way it'll play out. Stay tuned.

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