Chrysler Files for Bankruptcy Protection

(MoneyWatch)  Chrysler today will file for Chapter 11 protection from creditors in U.S. Bankruptcy Court in New York, according to senior officials in the Obama Administration.

Those officials characterized Chrysler's filing as a "surgical" measure, and predicted that a reorganized Chrysler would emerge from bankruptcy in 30 to 60 days.

"We worked very hard to keep this company out of bankruptcy. Unfortunately, not all of the banks and lenders were prepared to participate," one of those officials said in a press briefing that preceded an official White House announcement.

The Administration's auto task force had brokered an offer to Chrysler's secured creditors of $2 billion in exchange for $6.9 billion in debt. Chrysler's biggest creditors agreed to the deal, but the Adminstration insisted on unanimous acceptance. Some smaller Chrysler creditors continued to balk, despite a somewhat sweeter offer of $2.25 billion that was widely reported on April 30.

Here are some provisions of Chrysler's proposed reorganization:

• Chrysler's alliance with Fiat is expected to go ahead as planned. As part of the reorganization, Fiat will not be permitted to acquire a majority stake in Chrysler until after U.S. government loans are repaid.
• The U.S. government will have a say in appointing a new board of directors for Chrysler, but the government does not expect to exercise day-to-day, operational control of Chrysler.
• GMAC Financial Services will take over responsibility to provide wholesale and retail financing for Chrysler dealers and customers. That implies Chrysler ultimately will close its captive finance company, Chrysler Financial. Private equity firm Cerberus owns or controls all three companies, Chrysler, Chrysler Financial and GMAC.

Once Chrysler emerges from bankruptcy, Chrysler's proposed reorganization plan calls for Fiat to have a 20-percent stake in "New Chrysler," administration officials said. Fiat initially will be entitled to take additional equity in Chrysler up to a total of 35 percent.

Fiat can add to its stake in Chrysler in increments of 5 percent each, tied to three milestones to be achieved by the allied companies.

First, Fiat must help provide distribution for Chrysler products outside the NAFTA region. Second, Fiat must provide Chrysler with new, fuel-efficient engines, to be produced in U.S. factories. Third, Fiat must provide Chrysler with the means to build a 40-mpg car in the United States.