Meet 'New Chrysler'

ABC News' Jake Tapper , Rachel Martin , and Sunlen Miller report: “We have achieved a successful alliance with FIAT," a senior administration official said today. "One that we believe will make Chrysler a much stronger company going forward, will make it viable and will make it again a leading company in its industry. ... We have successfully achieved what was clearly the better outcome of the company and for all of the 35,000 workers at Chrysler and for all of the stakeholders.” The announcement includes decision to move Chrysler through a "short, surgical bankruptcy" in a New York court using Section 363 of the bankruptcy code "to clear away the remaining impediments to its successful relaunch." Afterwards, the newly restructured Chrysler will emerge, and apparently be called "New Chrysler." The administration official said the deal is close to the plan the president agreed to 30 days ago. "We worked very hard to keep this company out of bankruptcy, we dealt with every stakeholder, we achieved enormous sacrifice from many of the stakeholders including UAW, including the major banks that are lenders to this company," the administration official said. "But unfortunately not all of the banks were prepared, and lenders were prepared to participate in this program. And so with reluctance we have made the decision to go through this surgical bankruptcy process." 1. U.S. Government Assistance Working Capital: The U.S. government is prepared to provide approximately $3.3 billion in debt or in possession financing to support Chrysler though an expedited chapter 11 proceeding. Loan to the New Chrysler: Upon closing, the U.S. government is prepare to loan approximately $4.7 billion to New Chrysler, in the form of a term loan with $2.1 billion due in 30 months and the balance 50 percent due on the 7th anniversary and 50 percent due on the 8th anniversary of the loan. The interest will be an appropriate combination of cash and payment-in-kind. There is also an additional note of $288 million which is a fee for making these loans. These loans will be secured by a first priority lien on all of Chrysler’s assets. The U.S. Treasury will receive 8 percent of the equity of New Chrysler. Treasury can select four independent directors initially but after that will play no role in governance or management of the company. 2. Bankruptcy The bankruptcy will be short, 30-to-60 days, filed "immediately" in a New York court. (Why New York? Answer: The New York courts have experience in these dealings and can handle it most efficaciously, the official said). 3. Financing The financing for this "new Chrysler" will come from GMAC. GMAC will get financial support from the U.S. government in order to expand their portfolio to include Chrysler. 4. Canada Chrysler is getting a big boost from North of the border -- Canada will contribute one dollar for every three dollars the U.S. government contributes. The governments of Canada and Ontario will together receive 2 percent of the equity of New Chrysler. Canada gets to appoint one independent director, on the same basis as the four chosen by the U.S. 5. FIAT FIAT did not have any particular input into the bankruptcy decision and apparently left that to the Obama administration. This alliance will create the sixth-largest global automaker. FIAT is contributing "billions of dollars in advanced technology and intellectual property and offering Chrysler access to a global distribution network. FIAT's technology will allow Chrysler to build new fuel efficient cars in engines in U.S. factories." FIAT will contribute a free license to use all of its intellectual property and "know how" to capitalize Chrysler in exchange for 20 percent of the equity of the reorganized Chrysler. FIAT will have the right to select thee directors of Chrysler once reorganized, will have the right to earn up to 15 percent in addition equity (in three tranches of 5 percent, each in exchange for meeting performance metrics -- including introducing a vehicle produced at a Chrysler factory in the U.S. that performs at 40 mpg, providing Chrysler with a distribution network in myriad foreign jurisdictions, and manufacturing state-of-the-art, next generation engines at a U.S. Chrysler facility.) New Chrysler will purchase substantially all of the assets of the old Chrysler out of a chapter 11 bankruptcy in exchange for a $2 billion payment to its secured lenders. 6. Creditors Chrysler's largest secured creditors have agreed to exchange their portion of the Company's $6.9 billion secured claim for their pro-rata share of $2 billion in cash at closing. Daimler, Chrysler's current minority shareholder, has agreed to waive its share of Chrysler's $2 billion of second lien debt, give up its 19 percent equity interest in Chrysler's ultimate parent, and settle its guaranty obligation to the PBGC by agreeing to pay $600 million to Chrysler's pension funds. Cerberus has agreed to waive its share of Chrysler's $2 billion of second lien debt and forfeit its entire equity stake in Chrysler. Cerberus has also agreed to transfer its ownership of Chrysler headquarters in Auburn, Michigan, to the new Chrysler alliance. Lastly, Cerberus will contribute a claim it had against Daimler to assist in the Daimler settlement with PBGC. 7. Layoffs? There will be no layoffs associated with the bankruptcy. Although dealerships will eventually take a hit and will be closed over time. Unclear at this point exactly how many. 8. Operations The company will be able to operate normally during the bankruptcy process -- Americans will be able to buy Chrysler cars and warranties will be honored. 9. Concessions, Health Care & Pension Plans The UAW made concessions on wages, benefits and retiree health care. Chrysler Pension Plans will be preserved and their stability will be strengthened from a Daimler contribution of $600 million. The New Chrysler will establish an independent trust (VEBA) that will provide health care benefits for Chrysler's retirees. (VEBA will be funded by a note of $4.6 billion payable over about 13 years with a 9% rate of interest, and will receive 55% of the equity of New Chrysler. VEBA will select one independent director and will have no other governance rights.) “The president announced 30 days ago when he spoke, that if we were not able to achieve the appropriate level of shared sacrifice from all of the stake holders that it would be necessary for Chrysler to go though a surgical short bankruptcy in order to finish the restructuring of its balance sheet and emerge as a properly capitalized company that could be competitive," the senior administration official said. -- Jake Tapper, Rachel Martin, and Sunlen Miller

Join the Discussion
blog comments powered by Disqus
You Might Also Like...