Chrysler LLC's first-lien lenders are preparing a counter-offer for the U.S. Treasury that might include equity in a Chrysler-Fiat alliance and some cash in exchange for abandoning their claim to some $7 billion in debt, sources with knowledge of the matter said.
The Chrysler lenders are considering a response after being briefed on key issues in the struggling automaker's turnaround plans, including the proposed capital structure of an alliance between Chrysler
That information was provided to the Chrysler creditors on Sunday, about two weeks after the creditors rejected a government request to write off $6 billion of the amount they are owed, the sources said.
The sources, who declined to be identified because the talks are confidential, said the counter-offer could come in a few days.
The Chrysler lenders' steering committee has now been expanded to include four financial firms that did not receive any federal bailout funds -- Elliott Management, Oppenheimer Funds, Stairway Capital Management and Perella Weinberg Partners, the sources said.
Elliott Management was added last week, while the other three companies were added over the weekend, one of the sources said. The lending banks include JPMorgan Chase & Co
Those banks all received federal funding under the Troubled Asset Relief Program, a factor that had been seen as potentially complicating their negotiations with the Obama administration's autos task force.
Members of the lenders' steering committee declined to comment, as did Fiat. Chrysler was not immediately available for comment.
The four banks and Bear Stearns underwrote the $7 billion term loan in the summer of 2007, as Cerberus Capital Management acquired 80.1 percent of Chrysler from Daimler AG
That bank debt is worth far less than $7 billion on the open market today. The average bid for Chrysler's automotive operations bank loan is around 16.1 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.
Chrysler has been surviving on a $4 billion emergency loan from the U.S. government. Two weeks ago, it was given 30 days by the Obama administration to complete an alliance with Italy's Fiat or face a cut-off of its government funding that could force its liquidation.
The lenders want to avoid a liquidation of Chrysler because of the potential financial and economic cost of breaking up the smallest U.S. automaker, the sources said.
Chrysler's alliance with Fiat hinges on the terms for additional federal aid, one of the sources said. The alliance is effectively on hold until the government reaches a deal with the lenders, adding a sense of urgency to the discussions, the person said.
(Additional reporting by John Crawley in Washington and Faris Khan in New York; Editing by Brian Moss, Richard Chang)