WASHINGTON — A bankruptcy filing is still possible for Chrysler LLC even in the wake of a deal Tuesday between the Treasury Department and the company's lenders to radically reduce the company's debt, sources familiar with the discussions said.
The deal, reached late Monday between the Treasury Department and representatives of Chrysler's lenders, must be approved by 46 banks, the sources said. The agreement calls for the banks to accept $2 billion in cash in exchange for wiping out about $6.9 billion of Chrysler's debt. The banks would receive no equity in the company under the deal, the sources said.
"I would say that this is a very, very significant concession that these banks have made," said one of the sources, who spoke on the condition of anonymity because of the sensitivity of the discussions. "This is a very important step forward."
But this source cautioned that a Chrysler bankruptcy filing was still very possible because of uncertainty as to whether all of Chrysler's lenders would accept the agreement. If all of the banks don't agree to the deal, the Obama administration is likely to pursue a "surgical bankruptcy" for Chrysler to, "in effect, drag along any recalcitrant banks," the source said. The source added that the prospect of a bankruptcy "doesn't trouble" the administration, and he suggested such a filing might be likely.
"I would almost bet we would not get all 46 banks" to agree to the deal, one of the sources said.
The sources said they expected the talks to go down to the last minute leading up to an Obama-imposed deadline this week for Chrysler to reach agreement with its stakeholders on concessions and to complete a partnership with Italian auto maker Fiat SpA.
One of the sources said the new deal was reached only after the Obama administration convinced lenders that they would be worse off in bankruptcy court.
"There had to be shared sacrifice. Some people came to the table not fully appreciating the seriousness of the president's message on that point, so it has taken a little bit of time to convince everybody the president was serious," the source said.
A senior Obama administration official said the new agreement was a positive development.
"The agreement from Chrysler's principal banks is an exceptional accomplishment in line with the president's firm commitment that all stakeholders sacrifice to make this deal succeed," said the official.