A bankruptcy filing is still possible for Chrysler LLC despite a deal between the Treasury Department and Chrysler's lenders to radically reduce the company's debt, sources familiar with the discussions said.
The deal, reached late Monday between the Treasury and representatives of the automaker'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.
But a source said a Chrysler bankruptcy filing was still possible because of uncertainty whether all of its lenders would accept the deal. If all the banks do not agree, the White House may pursue a "surgical bankruptcy" for Chrysler to, "in effect, drag along any recalcitrant banks," the source said. He said a bankruptcy "doesn't trouble" the administration.
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 automaker Fiat SpA. One source said the new deal was reached after the Obama administration convinced lenders they would be worse off in bankruptcy court.