Chrysler has filed for chapter 11 bankruptcy protection after talks to restructure its debt with lenders broke down. The move will allow the firm to restructure without having to enter into liquidation and clears the way for a formal tie-up between Chrysler and Fiat.
Despite intense negotiations, the Cerberus-owned manufacturer on Thursday failed to gain the full support from its lenders that it needed to move forward with a restructuring and avoid the first-ever bankruptcy filing by a major United States-based manufacturer.
A filing under Section 363(b) of Chapter 11 of the bankruptcy code, which sources said would be done in US Bankruptcy Court in Manhattan, will send shock waves through the global automotive industry – including Chrysler’s rivals, suppliers, dealers and the many hundreds of thousands who rely on the industry for their livelihoods.
The US Treasury had been locked in tense negotiations with the Auburn Hills-based manufacturer’s creditors, and President Barack Obama had harsh words for the group of investment companies and hedge funds that balked at a debt restructuring.
“I do not stand with them,” Obama said, calling them “speculators” who sought to endanger Chrysler’s future for their own benefit.
He added that the Chrysler has been responsible for helping to build the American middle class, but “had moved too slowly to adapt to the future”.
Obama was quick to predict that Chrysler would emerge quickly from bankruptcy as a stronger, more viable company.
“This is not a sign of weakness but rather one more step on a clearly chartered path to Chrysler’s revival,” he said in allusion to the impending deal with Fiat, which would help to secure the marque’s future and, in doing so, create the world’s fifth largest car maker.
Under the plan the administration outlined Thursday, the Treasury Department will provide Chrysler with up to $3,5 billion in debtor-in-possession financing, and the Canadian government will provide around $800 million and get 2 per cent of Chrysler’s equity.
“The agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler’s future success,” a White House official said. “Their failure to act in either their own economic interest or the national interest does not diminish the accomplishments of Chrysler, Fiat and its stakeholders nor will it impede the new opportunity Chrysler now has to restructure and emerge stronger going forward”.
Reportedly, four major lenders holding 70 per cent of the debt agreed to the deal this week – giving Chrysler a better chance of quickly emerging from bankruptcy.
Chrysler CEO Robert Nardelli was expected to be replaced as part of the deal.
