NEW YORK (Reuters) -- Chrysler LLC's lenders are in talks with the U.S. government to reduce the automaker's debt by swapping some of it out for equity, new debt or a lesser amount in cash, sources familiar with the talks said Friday.
The lenders, JPMorgan Chase & Co (JPM, Fortune 500), Citigroup (C, Fortune 500), Goldman Sachs Group Inc (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500), are open to working out a deal. The discussions are moving quickly, with several different offers from the government on the table, the sources said.
The people declined to be identified because the talks are confidential.
All four banks declined comment, as did Cerberus Capital Management, which controls 80.1% of Chrysler.
Chrysler said it is "committed to working closely with all constituents, the administration, U.S. Treasury and the task force over the next 30 days to reach a successful conclusion."
Chrysler has been surviving on a $4 billion emergency loan from the U.S. government and has now been given 30 days by the Obama administration to complete an alliance with Italy's Fiat SpA or face a cut-off of its government funding that could force its liquidation.
The government has rejected a claim by Cerberus that Chrysler can be viable on its own, citing its relatively small size, weak product line-up and declining U.S. market share.
The lending banks are holders of first-lien secured debt, meaning they are first in line to be paid if the company files for bankruptcy. Chrysler's assets were pledged as collateral for the loans.
However, the willingness of the banks to get a deal done shows the government's influence on the banks, who themselves have received federal aid.
The four banks and Bear Stearns underwrote a $7 billion term loan that provided working capital for the automaker in a deal that was agreed in the summer of 2007.
That bank debt is worth far less than $7 billion on the open market. The average bid for Chrysler's automotive operations bank loan is around 15.2 cents on the dollar.
Portions of that senior secured debt were sold to roughly 50 other institutions, a source familiar with the credit group said, reducing the exposure of the original lenders.
JPMorgan's purchase of Bear Stearns meant its exposure increased to $2.5 billion, but it is unclear how much of that has been hedged or at what value it is being held on the bank's books. Citi has under $1 billion, one of the sources said.
Goldman Sachs sold some of its loans last year, sources previously told Reuters Loan Pricing Corp.Link: http://money.cnn.com/2009/04/03/news/companies/chrysler.reut/index.htm?postversion=2009040319
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