Preparations are underway by the Treasury department for the bankruptcy filing of Chrysler which could come as early as next week if Chrysler can swing a deal with its lenders, the New York Times reported.
The Treasury has an agreement in principle with the United Automobile Workers union, whose members’ pensions and retiree health care benefits would be protected as a condition of the bankruptcy filing, said these people, who asked for anonymity because they were not authorized to discuss the case, the paper reported.
Fiat of Italy would complete its alliance with Chrysler while the company is under bankruptcy protection.
What will become of the company’s lenders, who hold $6.9 billion in company debt, remains unanswered. On Wednesday the government offered lenders approximately 22 cents on the dollar, or $1.5 billion as well as a 5 percent equity stake in a reorganized Chrysler.
Officials at Chrysler and the Treasury were not immediately available for comment.
A bankruptcy filing by Chrysler would be the first among Detroit’s troubled automakers, who have been mired in a devastating sales slump since last fall.
The treasury is also working with General Motors to prepare a possible bankruptcy case, and the terms of a Chrysler filing might offer a glimpse into the shape of G.M.’s own filing.
“If Chrysler files, it will be interesting to see how that ripples through the industry. Many suppliers could be effected, but the supplier aid program set up by the Federal Government (and run through GM and Chrysler) has been put in place to make sure those parts makers do not have to collapse. A Chrysler bankruptcy would be the first major test for the supplier relief program”, said Phil Lebeau, CNBC analyst.