The Treasury Department is directing Chrysler to prepare a Chapter 11 bankruptcy filing as soon as next week, people with direct knowledge of the talks said Thursday.
Treasury now has an agreement in principle with the U.A.W., whose members’ pensions and retiree health care benefits would be protected in the event of a bankruptcy filing
A bankruptcy filing for Chrysler would most likely wipe out existing equity stakeholders, notably Cerberus Capital Management
The four major banks — JPMorgan Chase, Citigroup, Morgan Stanley and Goldman Sachs — hold about 70 percent of the roughly $7 billion of Chrysler debt, and they favor striking a deal with the government. Many of the hedge funds, however, are calling for a tougher stance.
In bankruptcy, Chrysler could sell or jettison any assets it did not want to keep and cancel franchise agreements with car dealers it considered superfluous.
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