Chrysler’s bankruptcy imminent

Article by Christian Andrei, on August 29, 2010

Chrysler can't come up with an agreement with other creditors to trim down its debt even though it has struck a deal with a few major creditors. Chrysler may be forced to file for bankruptcy as early as tomorrow as a result of their hesitation.

A number of creditors came to terms with Chrysler to accept $2 billion in cash in place of the $4.83 billion the carmaker is responsible for.

Those with connection to the balance of $2.07 billion are not willing to agree to a lowered payment or a debt-for-equity exchange, casting considerable doubt on the carmaker's future and the stalling merger with Fiat.

It has been suggested that Chrysler will file for bankruptcy in the Southern District of New York, a court well-known for its aptitude in settling intricate asset-sale transactions. If this filing pushes through, then a restructured Chrysler would only carry good assets and brands and would eventually become US Treasury property.

There is speculation that the US Treasury would utilize the $4 billion aid it offered to Chrysler as leverage, together with a likelihood of further purchase of debt or equity, to acquire these assets.

Referred to as surgical bankruptcy, it will create a reformed Chrysler in as little as 30 days after filing. Likely to remain in bankruptcy for a prolonged period of time are bad assets, including some dealer agreements and other debts, which will be eventually sold off in time.

Topics: chrysler, bankruptcy

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