It’s all but certain that two huge news stories will hit the airwaves soon. Multiple sources (I’ll stick with Automotive News) are reporting that Chrysler will announce today that it is filing for Chapter 11 bankruptcy protection to reorganize its debt (not the more ominous Chapter 7 liquidation). President Obama and Chrysler officials will have a statement at about 9:00 this morning about the matter.
Update: It’s happened. Chrysler is filing for Chapter 11, ditching Chrysler Finance in favor of GMAC (!), and Nardelli will be out as CEO after the bankruptcy is complete, a process the administration expects to take 30-60 days. Autoblog has a nice summary of the details here.
This is the first-ever bankruptcy filing by one of the Detroit 3, and it all came down to reluctant bondholders. The Treasury Department, which has been brokering an agreement between Chrysler and the various agencies holding its paper, was trying to get Chrysler’s $6.9 billion in secured debt erased in favor of $2.25 billion in cash, a 67 percent reduction in value. Hmm…33 cents on the dollar. Can’t imagine why they’d balk at that.
The Obama administration is already turning up the rhetorical heat. An unnamed official close to the negotiations puts the blame for the bankruptcy squarely on the bondholders’ shoulders. “While the Administration was willing to give the holdouts a final opportunity to do the right thing, the agreement of all other key stakeholders ensured that no hedge fund could have a veto over Chrysler’s future success,” the official said. In addition, “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.”
The interesting thing there is the mention of Fiat (plus the whole “national interest” part), the tone of which assumes that the alliance is a done deal. That announcement will be Big News Item #2, and we’ll all find out more about that later today. In the meantime, let’s consider Chrysler’s bankruptcy a test case for GM, which may do the exact same thing in a month or so.
