US PRESIDENT Barack Obama has blamed a handful of Chrysler creditors and hedge funds for forcing the car giant into bankruptcy protection by rejecting a loan reduction scheme backed by the White House.
Chrysler, the third-biggest US car manufacturer, yesterday became the first major American car manufacturer to file for bankruptcy in more than 70 years. The company hopes to emerge from Chapter 11 protection within 60 days and has formed a partnership with Italian carmaker Fiat.
“While many stakeholders made sacrifices and worked constructively, I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none,” Mr Obama said.
“I don’t stand with those who held out when everybody else is making sacrifices. And that’s why I’m supporting Chrysler’s plans to use our bankruptcy laws to clear away its remaining obligations so the company can get back on its feet and onto a path of success.”
Four banks that hold the majority of Chrysler’s debts agreed to a deal that would write off the $6.9 billion the car company owes in return for $2.25 billion. A few dozen creditors, mostly hedge funds – which hold about 30 per cent of Chrysler’s debts – rejected the deal, calculating that they could receive more under bankruptcy.
Chrysler will continue selling cars while it remains under Chapter 11 protection and the US government has guaranteed its car warranties. The company’s factories will remain idle during bankruptcy, however.
Under its partnership agreement with Fiat, Chrysler has agreed to give the Italian carmaker a 20 per cent equity stake in return for access to Fiat’s fuel-efficient technology. Fiat will manufacture some of its models at Chrysler plants and the cars will be marketed in the US as Chryslers.
Chrysler will receive $10.5 billion in US and Canadian government financing. The United Auto Workers union retirees’ healthcare fund will take a 55 per cent stake in the company.
Fiat’s stake could rise to 36 per cent if certain benchmarks are met and the Italian firm could acquire a further 16 per cent in 2016 if Chrysler repays its debt to the US government.
“It’s a partnership that will give Chrysler a chance not only to survive, but to thrive in a global auto industry,” Mr Obama said. “Fiat has demonstrated that it can build the clean, fuel-efficient cars that are the future of the industry, and as part of this agreement, Fiat has already agreed to transfer billions of dollars in cutting-edge technology to Chrysler to help them do the same. Fiat is also committed to working with Chrysler to build new fuel-efficient cars and engines right here in America.”
Under bankruptcy, the majority of the lenders who approved the $2.25 billion plan could force the minority to accept a payout similar to the rejected deal.
“The rogue hedge funds that refused to agree to a fair offer to exchange debt for cash from the US Treasury, firms I label as the vultures, will now be dealt with accordingly in court,” Michigan congressman John Dingell said.
Some of the minority creditors could benefit from credit default swaps that insure their loans against Chrysler’s bankruptcy.
