Chrysler filed for Chapter 11 bankruptcy yesterday after talks to restructure its debt with bondholders collapsed. Chrysler failed to gain the bondholder support it needed to move forward with a restructuring and avoid the first-ever bankruptcy filing by a major U.S. automaker. Chrysler also entered into the anticipated alliance with the Italian automaker Fiat.
In a bid to win over three fund firms that had spurned an offer to accept $2 billion in cash in exchange for writing off all of Chrysler’s $6.9 billion in secured debt, U.S. officials sweetened the terms by throwing in another $250 million, people familiar with those discussions told Reuters. About 45 financial institutions hold Chrysler’s secured debt.
The NY Times reports the bankruptcy case, which government officials envisioned as a swift, “surgical” process, was filed in United States Bankruptcy Court in New York, with the first hearing scheduled for Friday morning. It marks the first time a major American car company has tried to restructure under bankruptcy protection since Studebaker in 1933.
“I have every confidence that Chrysler will emerge from this process stronger and more competitive,” President Obama said during a noontime appearance at the White House.
The president emphasized the speed with which the administration expects the bankruptcy process to be completed, saying that it would be “quick, official and controlled” and that the lives of those who work at Chrysler or live in communities where the company has its operations would not be disrupted.
Obama said the partnership with Fiat “will give Chrysler not only a chance to survive but to thrive in the global auto industry.” He said it was made possible by the series of sacrifices by Chrysler stakeholders, such as the United Automobile Workers union, and said more sacrifices were in store.
In an interview on CNBC, Chrysler CEO Robert Nardelli, said he would leave Chrysler after it emerges from bankruptcy protection. He said Chrysler would be run by a new nine-member board, including three representatives from Fiat. The board will select a new CEO. Nardelli said that the government did not ask him to leave, but that he felt it would be appropriate to do so.