Life & Style | Motoring
Chrysler bankruptcy announced
Chrysler LLC was set to file for bankruptcy yesterday after talks to restructure its debt with lenders broke down, US President Barack Obama said.
- Reuters
- Published: 18:06 April 30, 2009
- Image Credit: Reuters
- US President Barack Obama speaks about the Chrysler Chapter 11 filing and its partnership with Fiat in front of his auto task force from the White House in Washington.
Detroit/Washington: Chrysler LLC was set to file for bankruptcy yesterday after talks to restructure its debt with lenders broke down, US President Barack Obama said.
"Today, I am pleased to announce that Chrysler and Fiat have formed a partnership that has a strong chance of success," Obama said in brief remarks at the White House announcing the deal, which he said will help Chrysler emerge from a swift and "controlled" bankruptcy as a stronger company.
Despite intense negotiations over the past few weeks, Chrysler failed to gain the full support from its lenders to avoid the first-ever bankruptcy filing by a major US automaker.
At the same time, Chrysler was expected entered into an alliance with Italian automaker Fiat SpA where it sold a stake starting at 20 per cent and in which Fiat can become the majority owner once the government loans are repaid.
The Chapter 11 filing, in US Bankruptcy Court in Manhattan, will send shock waves through the entire industry — including Chrysler's rivals, suppliers, dealers and the hundreds of thousands who rely on the industry for their livelihoods.
As part of the filing, the US government will provide up to $3.5 billion in debtor-in-possession (DIP) financing and up to $4.5 billion in exit financing. Obama said he hopes the entire bankruptcy process will take only 30 to 60 days.
The bankruptcy signals that Obama is prepared to play hardball with holdout lenders rather than knuckle under to their demands and will likely set the tone for similar discussions with bondholders of General Motors Corp — which is now on the clock to restructure its operations by the end of May.
In 1980, US President Jimmy Carter signed a bill providing Chrysler with more than $1 billion in loan guarantees. Once again, the state of Michigan — and in particular the Detroit area —will be disproportionately hurt by the auto industry's woes.
"The industry's current crisis, with the potential for bankruptcy or consolidation, represents a fundamental shift in the state's economic base, rather than a simple cyclical downturn," Moody's credit ratings agency said in a report last week.
"Bankruptcy is what they have been headed for in the past several months," said Mirko Mikelic, portfolio manager at Fifth Third Bank. "The biggest concern now is that the different stakeholders will be able to make the tough decisions they need to make."
Investors reacted positively to the news as the broad Standard & Poor's 500 index was up 1.5 per cent. GM shares were up 4.4 per cent and Ford Motor Co was up 9.2 per cent in midday trading on the New York Stock Exchange.
The bankruptcy filing did not preclude the Fiat deal.
Chrysler has been seeking a rescue deal from the Italian automaker while also trying to finalise its debt agreement. The debt restructuring talks have been spearheaded by the Obama administration's autos task force and former investment banker Steve Rattner.
— With inputs from AP
Popular in Motoring
Life & Style editor's choice
-
Ten simple ways to love yourself
Just a few small changes to your day can make a big difference
-
Style story: Make waves with beachwear
Life's a beach in this summer's gorgeous new swimwear
-
Classic cars: Maserati BiTurbo
The common man's Maser is arguably the best stepping stone into the world of Italian classic cars
Multimedia
