NEW YORK -- Chrysler LLC's lenders are resisting efforts to convert most of the automaker's debt to equity, a conversion key to Chrysler's plan to restructure without filing for bankruptcy protection, according to a published report.
Banks including JPMorgan Chase & Co., Goldman Sachs, Citigroup Inc. and Morgan Stanley loaned Chrysler $6.8 billion in 2007 when Cerberus Capital Management LP acquired an 80.1 percent stake in the automaker. Former Treasury Secretary John W. Snow of Richmond is chairman of Cerberus.
Now, Chrysler needs to swap $5 billion of that debt for equity in the automaker, as part of the plan for the company to become viable, The Wall Street Journal reported yesterday, citing unnamed people familiar with the talks.
The banks' reluctance is slowing Chrysler's efforts to reach a definitive deal on an alliance with Fiat Group SpA, and also stalling the company's attempt to reach a health-care agreement with the United Auto Workers union, the Journal reported.
Because the banks hold debt secured by collateral, they have the right to take Chrysler plants and assets if the company files for bankruptcy protection. That means they may be better off with what's left of Chrysler in liquidation than what they'd get if they agree to restructure the debt.
The government has little leverage to force the banks to make concessions if they believe they'll be better off in bankruptcy court. But the banks are also the direct recipients of government aid through their own bailouts.
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