Chrysler Nears Bankruptcy Filing: Report

The Times was given the information by sources who asked for anonymity due to the sensitivity of the information. The Treasury Department has cut a deal with the United Auto Workers (UAW) guaranteeing UAW pensions and retirees' health care benefits.

Additionally, President Barack Obama recommended previously that Chrysler must cut a deal with Fiat, with a 30-day deadline asserted. As part of this bankruptcy filing, while Chrysler is under bankruptcy protection, Fiat would acquire the company.

Don't expect such a Chrysler bankruptcy filing to be trouble-free, however. Why? The creditors could receive as little as 22 cents on the dollar:

The only major question that remains unresolved is what happens to Chrysler’s lenders, who hold $6.9 billion in company debt. The government’s most recent offer, presented Wednesday, would give the company’s lenders about 22 cents on the dollar, or $1.5 billion, and a 5 percent equity stake in a reorganized Chrysler. Earlier this week, a steering committee of the lenders proposed that they receive 65 cents on the dollar, or $4.5 billion, and a 40 percent equity stake.

If no agreement is reached between the government and Chrysler’s lenders, a nasty legal fight could emerge in bankruptcy. The creditors’ claims are backed by most of the company’s collateral, including plants, brands and equipment, and the senior lenders will argue that they have first claim on those assets — even over and above the government’s debt.

While a Chrysler bankruptcy filing would be the first for America's Big 3 automakers, recent noises have been made about a possible GM bankruptcy as well.