Chrysler will file for bankruptcy after talks with a small group of creditors crumbled just a day before a government deadline for the automaker to come up with a restructuring plan, say two administration officials. The Obama administration had long hoped to stave off bankruptcy for Chrysler LLC, but it became clear that a holdout group wouldn’t budge on proposals to reduce Chrysler’s $6.9 billion in secured debt, according to the officials, who spoke on condition of anonymity because the filing plans are not public. Clearing those debts was a needed step for Chrysler restructure by tonight’s deadline.
Bankruptcy doesn’t mean the nation’s third-largest automaker will shut down. And the privately-held Chrysler is expected to sign a partnership agreement with the Italian company Fiat as early as today as part of its restructuring plan. A Chapter 11 bankruptcy filing would allow a judge to decide how much the company’s creditors would get.
The Treasury Department’s auto task force has been racing the past week to clear the major hurdles that prevented Chrysler from coming up with a viable plan to survive the economic crisis ravaging nation’s automakers. Along with the Fiat deal, the United Auto Workers ratified a cost-cutting pact Wednesday night. Treasury reached a deal earlier this week with four banks that hold the majority of Chrysler’s debt in return for $2 billion in cash.
