Financial Reform Watch

In the Rumble Seat

Media outlets report this afternoon the rumblings of an impending bankruptcy for Chrysler -- with a filing as early as next week. This is not unexpected news, but some of the early discussion of the potential terms of the package are of interest for what they portend for a potential General Motors bankruptcy down the road.

It appears as if the Obama Administration is steering this plan towards a tough work-out plan for lenders to Chrysler. Reports say they may get as little as 22-cents on the dollar and a five percent equity stake.  A committee of lenders has proposed significantly more on both sides of that scale, as one might imagine. The federal government would offer financing to bridge the company through the bankruptcy process while its partnership with Fiat is finalized. Reports are that Fiat's continued interest is essential to this arrangement and that they do remain in the picture.

Otherwise, Labor appears poised to get some help in stabilizing retiree health benefits. Half of the roughly $10 billion required would reportedly come from stock in Chrysler and the rest would be paid in over a period of years -- with the government standing behind all or some of those payments. Auto dealers have plenty to be concerned about as the bankruptcy process would potentially allow Fiat/Chrysler to jettison franchise agreements where it sees fit.

While the situations faced by GM and Chrysler differ in many ways, the major elements of this deal may well serve as a template for a government orchestrated bankruptcy of General Motors. The government financing during the bankruptcy, debt for equity swap and government support of retiree health benefits are all elements that may well be part of that deal. The fact that the administration is floating this at this juncture indicates they are testing the waters to see how such a deal might be received.

We will stay tuned to this process and keep our readers informed of developments. Fasten your seatbelts.

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