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MissPuss - 30 Apr 2009 21:23 GMT

"Obama Blames Lenders for Pushing Chrysler Into Bankruptcy"

"President Says Automaker Will Return From Protection With a 'New
Lease on Life'"

By Brady Dennis, Tomoeh Murakami Tse and Kendra Marr
Washington Post Staff Writers
Thursday, April 30, 2009 2:49 PM

Chrysler, the country's third-largest auto company, filed today for
Chapter 11 bankruptcy protection under a plan that President Obama
said will give the troubled automaker "a new lease on life."

"I have every confidence that Chrysler will emerge from this process
stronger and more competitive," Obama said at a noon press conference,
adding, "This is not a sign of weakness, but rather one more step on a
clearly charted path toward Chrysler's revival."

Chrysler, one of the three pillars of the American auto industry,
filed for bankruptcy this afternoon after last-minute negotiations
between the government and the automaker's creditors broke down
yesterday. U.S. officials had offered Chrysler's secured lenders $2.25
billion in cash if they would agree to writedown the $6.9 billion in
secured debt that the company owed. But a small group of hedge funds
refused the 11th-hour deal.

An administration official this morning expressed disappointment,
saying the holdouts had failed to "do the right thing," but that
"their failure to act in either their own economic interest or the
national interest does not diminish the accomplishments made by
Chrysler, Fiat and its stakeholders, nor will it impede the new
opportunity Chrysler now has to restructure and emerge stronger going
forward."

"I don't stand with those who held out when everybody else is making
sacrifices," Obama said at the White House today.

Shortly before the president's remarks, a group claiming to represent
the holdouts on the deal released a statement claiming that they had
been "systematically precluded" from direct negotiations with the
government in favor of creditors who had previously received assitance
from the government.

Chrysler chief executive Robert Nardelli announced today that he will
return to Cerberus Capital Management as an adviser.

"Now is an appropriate time to let others take the lead in the
transformation of Chrysler with Fiat," said Nardelli in a statement.
"I will work closely with all of our stakeholders to see that this new
company swiftly emerges with a successful closing of the alliance."

The company's bankruptcy filing, and the U.S. government's attempt to
save it, amounts to another extraordinary intervention in the economy
and a landmark event in the history of the American auto industry.

Under the administration's detailed plan for a "surgical bankruptcy,"
ownership of Chrysler would be dramatically reorganized, the
leadership of Italian automaker Fiat would take over company
management and the U.S. and Canadian governments would contribute more
than $10 billion in additional funding.

Company and government officials had feared that a bankruptcy would
stain the brand, shake customer confidence and erode sales, but the
administration said it would seek to use the process to create a new
Chrysler company. Its ownership would be divided, with the company's
union retiree health fund receiving a 55 percent stake, Fiat would
claim as much as a 35 percent share and the United States would take 8
percent. The Canadian government would receive two percent.

The automaker's current majority owner, the private-equity firm
Cerberus Capital Management, would have its holdings wiped out.

During the bankruptcy, the governments would provide $4.5 billion in
new funds, with 80 percent coming from the United States and 20
percent from Canada, which hosts a number of Chrysler operations. As
the company emerged from its reorganization, the United States and
Canada would provide another $5.63 billion, the sources said. The U.S.
funds come from the government's Troubled Assets Relief Program.

The U.S. and Canada would be given the highest priority among
Chrysler's creditors after the company emerges from bankruptcy.

Particularly striking to some economists and historians is that the
plan turns over ownership of a major U.S. industrial company to an
employee-run trust, a deal that is "unprecedented on this scale,"
according to Harley Shaiken, a University of California at Berkeley
professor and expert on unions.

The government plan also calls for ensuring that Chrysler maintains
substantial U.S. manufacturing operations. It requires that at least
40 percent of company sales volumes remain manufactured domestically,
or for the company's total production in this country to remain at
least at 90 percent of its U.S. production last year.

"Anyway you cut it, the union is going to be a major presence at the
company," Shaiken said.

One key issue, however, will be who appoints the restructured
Chrysler's board of directors.

The government's bankruptcy plan envisions a company with nine board
seats, three of them appointed by Fiat. It does not specify who would
appoint the rest.

In April, Nardelli sent a letter to employees indicating that the U.S.
government would play a key role.

"Upon successful completion of the alliance, a board of directors for
Chrysler will be appointed by the U.S. government and Fiat," he wrote.
"The majority of the directors will be independent (not employees of
Chrysler or Fiat)."

Fiat intends to form an alliance with Chrysler even as the company
goes into bankruptcy. While four of Chrysler's major creditors -- J.P.
Morgan Chase, Citigroup, Goldman Sachs and Morgan Stanley -- had
agreed to the Treasury's last-ditch effort to help Chrysler avoid
bankruptcy, other lenders, mainly hedge funds, had held out. The
holdouts included Oppenheimer Funds, Perella Weinberg Partners and
Stairway Capital, two sources said. The last two have funds that
invest in "distressed" companies. It is not known which companies
ultimately failed to reach agreement with the government.

Today, a group of about 20 firms who declined to go along with the
deal to save Chrsyler from bankruptcy released a statement claiming
that the proposal to keep the automaker out of bankruptcy was unfair.

The group, which does not identify its members but sources said
includes Perella Weinberg, Stairway Capital and OppenheimerFund, said
they had been "systematically precluded" from engaging in direct
negotiations with the government, which they said had been largely
done by four large banks that own 70 percent of the $6.9 billion in
loans. Goldman Sachs, Citigroup, JPMorgan and Morgan Stanley had all
agreed to the government's offer of $2.25 billion, or 33 cents on the
dollar, for the loans.

"We have been forced to communicate through an obviously conflicted
intermediary: a group of banks that have received billions of TARP
funds," the lenders who rejected the government offer said.

The holdout lenders -- who said their combined debt holding represents
about $1 billion of the $6.9 billion owed to senior secured lenders --
struck back at comments from an unnamed administration official this
morning that blamed them for causing the imminent bankruptcy. The
group said they had offered to accept 60 cents on the dollar, despite
"long recognized legal and business principles" that gives senior
lenders such as themselves the right to be repaid in full before
others recover anything in bankruptcy court.

"Our offer has been flatly rejected or ignored," the group said. "In
its earnest effort to ensure the survival of Chrysler and the well
being of the company's employees, the government has risked
overturning the rule of law and practices that have governed our world-
leading bankruptcy code for decades."

Bankruptcy enables a company to shed some debt and other obligations,
and a court could force the recalcitrant hedge funds to accept the
deal that the large banks have.

The court proceedings could also help the company cut the costs of
closing some of its 3,200 Chrysler, Jeep and Dodge dealerships.
Because some state franchise laws prevent automakers from forcing
dealers to close, it can be expensive to buy them out.

[Staff writers David Cho, Peter Whoriskey and Steven Mufson
contributed to this report.]

http://www.washingtonpost.com/wp-dyn/content/article/2009/04/30/AR2009043001639.
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