Chrysler LLC's first-lien lenders are preparing another counter-offer to the U.S. Treasury that involves reducing the automaker's debt, sources familiar with the matter said on Thursday.
The U.S. Treasury on Wednesday offered the lenders $1.5 billion and a 5-percent equity stake in a restructured Chrysler in exchange for about $7 billion of debt they now hold.
The lenders' steering committee is preparing a counter-offer that would include better terms for the lenders, and the offer should be ready soon, one of the sources said.
The lenders had initially offered to retain about $4.5 billion in debt and take a 40-percent stake in a new Chrysler supported by government investment and a deal with Italian automaker Fiat SpA.
That would have marked a much richer payout for the creditor group than U.S. officials first offered the banks, when they were asked to write off almost $6 billion in debt for no equity that would allow the lenders to benefit from a recovery from the automaker.
The committee representing Chrysler lenders includes the banks that helped finance Chrysler's 2007 sale to private equity firm Cerberus Capital Management: JPMorgan Chase & Co, Morgan Stanley, Citigroup Inc and Goldman Sachs Group.
The committee was broadened earlier this month to also include Oppenheimer Funds, Stairway Capital Management, Elliott Management and Perella Weinberg Partners.
Chrysler has been loaned $4 billion in emergency funds by the U.S. government and has asked for another $5 billion to operate.
The White House-appointed autos task force has given Chrysler until the end of the month to reach agreements for an alliance with Fiat, a reduction in secured debt and resolution of labor issues with its unions.
Without those deals, the Obama administration has said it would cut off funding for Chrysler. The automaker has said such a move would send it into a bankruptcy to liquidate assets.
Separately, the New York Times said on its website the U.S. Treasury is preparing a Chapter 11 bankruptcy filing for Chrysler that could come as soon as next week, citing unnamed sources.
In response to the New York Times report, Chrysler said it would continue to work through the end of April to secure the support of the necessary stakeholders and reach a conclusion the Obama administration and U.S. Treasury deems appropriate.
Meanwhile, the Treasury expects only a small percentage of recovery on the loans it has given to Chrysler in case the automaker liquidates its assets in bankruptcy, a report by the Government Accountability Office (GAO) said on Thursday.
According to Treasury, in the case of Chrysler, the sale of the assets would result in cash equal to only a small percentage of the value of the loans, the GAO, the investigative arm of Congress, said in the report.
The Treasury was unable to obtain senior liens on most assets as they were already encumbered, the report said.
This is the first time the U.S. government has characterized the potential recovery of the loans it has given Chrysler, or laid out the rationale behind its decision to accept third lien credit behind banks and Daimler AG and Cerberus Capital Management.
(Reporting by Jui Chakravorty and Poornima Gupta; editing by Tim Dobbyn and Carol Bishopric)