Sun, Apr 05, 2009 - Page 11 News List

Banks resist swapping debt for auto stocks

NEW CEO: The new head of General Motors has embraced a plan to change direction for the automaker and is working to make the firm viable to avoid sudden liquidation

REUTERS , WASHINGTON

United Auto Workers member Antonino Rescich prepares to “marry” a Malibu car body onto its chassis at the General Motors Fairfax Assembly Plant in Kansas City, Kansas, last Wednesday.

PHOTO: REUTERS

Banks that have loaned Chrysler LLC US$6.8 billion are resisting government pressure to swap more than US$5 billion of that debt for stock, the Wall Street Journal reported yesterday.

The banks’ reluctance is slowing Chrysler’s attempt to cement an alliance with Fiat SpA of Italy by May 1 as well as its attempt to renegotiate a health-care accord with the United Auto Workers union, the newspaper reported on its Web site, citing people familiar with the matter.

Sources familiar with the talks said on Friday that the lenders were open to working out a deal on debt restructuring and those discussions were moving quickly forward.

The sources said the government had suggested a reduction in Chrysler’s debt of as much as US$6 billion.

The lenders include JPMorgan Chase & Co, Citigroup, Goldman Sachs Group Inc and Morgan Stanley. As holders of secured debt, they have the right to take control of Chrysler brands, plants and other assets pledged as collateral if the company files for bankruptcy protection.

On Wednesday, the US Treasury gave Chrysler 30 days to broker concessions to improve its financial position with its debt holders and or face bankruptcy.

All four banks declined comment, as did Cerberus Capital Management, which controls 80.1 percent of Chrysler.

Meanwhile, the new chief executive of General Motors (GM) has embraced a change of direction for the automaker and is working on a plan to make the firm viable, White House economic adviser Austan Goolsbee said on Friday.

Goolsbee said GM CEO Fritz Henderson, who took over for ousted chief executive Rick Wagoner, was “considering all the various options to make it a viable plan going forward and to avoid an uncontrolled liquidation.”

“It’s clear he’s embracing a change of direction and they’re trying to work on a viable plan,” he told Reuters Financial Television.

US President Barack Obama’s administration on Monday said the two carmakers’ restructuring plans had not gone far enough. It forced Wagoner’s ouster, pushed Chrysler LLC toward an alliance with Italy’s Fiat SpA and threatened bankruptcy for both.

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