Report: Deal Reached On Chrysler Debt
Chrysler's bid to avoid bankruptcy got another boost Tuesday, as the Treasury Department reached a tentative deal with four of Chrysler's major debtholders, a source told the Associated Press.
Under the agreement, the four banks will forgo claims to the $6.9 billion worth of Chrysler debt they hold in exchange for $2 billion in cash when the deal closes, says the person, speaking on condition of anonymity because the agreement has not been formally announced.
The person says Treasury needs to convince all 46 banks and hedge funds that hold Chrysler debt to go along. If not, a bankruptcy filing could still be possible for the nation's third largest automaker.
Chrysler has been busy trying to slash costs and eliminate debt before a government-imposed deadline at the end of this month.
On Monday, the United Auto Workers union leaders voted unanimously to recommend approval of concessions that union President Ron Gettelfinger said would help keep the automaker out of bankruptcy.
The deal, which will be voted on by the full union later this week, would give workers a 55 percent stake in a restructured Chrysler LLC and its retiree health care trust would get a seat on the board of directors.
A summary of the revised Chrysler-UAW contract says that Italian automaker Fiat Group SpA eventually will own 35 percent of a restructured Chrysler, with the remaining 10 percent stake divided between the U.S. government and secured lenders, mostly banks and hedge funds.
The summary says that Chrysler stock eventually will be traded publicly again, as there are mechanisms for the UAW to sell shares to fund the trust.
The Obama administration required that equity fund at least 50 percent of Chrysler's $10.6 billion obligation to a union-run trust that will take over retiree health care costs starting next year, according to the summary.
It also said that under the agreement, workers will no longer get most of their pay if they are laid off. Instead, they will get supplemental pay from the company equal to 50 percent of their gross base pay.
Union leaders say ratification votes across the nation should be finished by Wednesday. That's one day before Chrysler's government-imposed deadline to restructure or the government will cut off aid and send the company into liquidation.
Chrysler is living on $4 billion in U.S. government loans and must win concessions from its unions, swap equity for debt and ink a partnership deal with Fiat.
Fiat has been in discussions with Chrysler to take a 20 percent stake in the Auburn Hills, Mich., automaker in exchange for Fiat's small-car technology.
Under the deal, which was reached with Chrysler, Fiat and the U.S. Treasury Department, cost-of-living pay raises will be suspended through the contract's expiration in 2011, and it adds a provision for binding arbitration on a new contract through 2015. If no agreement can be reached on a new contract, the arbitrator must base total hourly labor costs on a rate comparable to Chrysler's U.S. competitors, including foreign-owned manufacturers.
The union also agreed to consolidate nonskilled labor job classifications into a team concept at all factories. Performance and Christmas bonuses will be suspended this year and next to help pay health care costs.
As part of the deal Fiat committed to manufacturing a small car in one of Chrysler's U.S. facilities, but the summary doesn't say where. In addition, Fiat will share key technology with Chrysler, including as all of its vehicle underpinnings and a 1.4 liter, four-cylinder engine.
The health care trust will select one member of Chrysler's board, with UAW consent.
"We fought to maintain our wages, our health care and our jobs," Gettelfinger and Vice President General Holiefield said in a letter to workers. "In the face of adversity, we secured new product guarantees, and we negotiated new opportunities for UAW involvement in future business decisions."
In addition to the stock, the company will pay its remaining $4.6 billion obligation to the health care trust in cash annually through 2023. Payments will start next year and in 2011 at $300 million, rising to $400 million in 2012, and $600 million in 2013. After that, it goes to $650 million per year in 2014 through 2017 and to $823 million in 2019 through 2023.
Under the health care trust, retirees will no longer have dental and vision coverage, according to the summary sheet. The union says it likely will have to make additional benefit cuts in 2010 and 2011 because of uncertainty over the value of the Chrysler stock.
However, if the stock gains in value, benefits could be restored, the summary sheet says.
The local leaders recommended approval of the deal after a three-hour meeting at a suburban Detroit hotel.
The deal likely will serve as the template for a pact with General Motors Corp., which also is receiving federal aid. Ford Motor Co. already has signed a deal with the UAW, but has said it will see parity if Chrysler and GM get better terms.
If Chrysler can pull the package together in time, the government has said it will loan a new Chrysler-Fiat partnership up to $6 billion more. Chrysler also could get $500 million to stay afloat through April.