Chrysler To Be Taken Over By Fiat; Bankruptcy Not Ruled Out
By Michelle Krebs April 29, 2009By Michelle Krebs
DETROIT -- The precise sequence of events appears murky at the moment, but two things appear to be happening with Chrysler on the eve of the government-imposed deadline: Italy's Fiat will take over Chrysler, and Chrysler is preparing Chapter 11 reorganization papers, that may or may not be filed in bankruptcy court.
Either way, President Obama reportedly will make an announcement on Thursday on the future of Chrysler.
However, so far, no one is confirming anything -- not Fiat, not Chrysler and not the Obama administration.
A couple of scenarios are emerging on how the Chrysler-Fiat alliance will come together, a couple of them involving bankruptcy, another keeping it out of bankruptcy court..
What's clear is heavy negotiating continues as the clock until the midnight deadline Thursday ticks down.
In fact, the Wall Street Journal is reporting that President Obama will make an announcement about the future of Chrysler Thursday morning but two versions of his speech are being drafted -- one for Chrysler going into bankruptcy, another for avoiding it.
The Journal reports that Chrysler and U.S. Treasury Department officials are in last-minute negotiations to try to keep Chrysler out of bankruptcy court, but that a Chapter 11 filing is being prepared.
Treasury officials, led by Ron Bloom, a member of President Obama's automotive task force, along with Michigan's Congressional delegation reportedly are trying to persuade lenders and hedge funds that hold Chrysler debt to take a deal already agreed to by four major banks to reduce the automaker's debt.
Bloomberg News is reporting that Chrysler's best assets would be sold to a new entity that would have an ownership structure similar to that envisioned in an out-of-court deal between Chrysler and Fiat. That deal calls for Fiat owning 20 percent of Chrysler, a union retiree health-care trust fund owning 55 percent and the rest being owned by the U.S. government.
Two Roads of Bankruptcy
Two scenarios for bankruptcy are being talked about.
President Obama could put Chrysler into bankruptcy, and the so-called section 363 of the bankruptcy code could be invoked, allowing Chrysler to be turned over to Fiat. Fiat then could keep the good assets and ditch the bad ones. It also could nullify contracts it doesn't want.
Another scenario has Fiat taking over Chrysler and then immediately taking it into a pre-packaged bankruptcy to accomplish basically the same thing.
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