Chrysiat, after all

Nick Bunkley and Bill Vlasic have an article in The New York Times about the Chrysler deal:

Union leaders said Sunday that they had reached an agreement with Chrysler that meets federal requirements for the automaker to receive more financing. The deal includes Fiat, the Italian automaker with which Chrysler was ordered by the government to form an alliance before Thursday. Neither the United Automobile Workers union nor the company released details of the tentative agreement, which would modify the union’s 2007 contract and reduce the amount of money Chrysler must pay into a new health fund for retirees. The union plans to have its 26,000 Chrysler workers vote on the deal by Wednesday.
Chrysler said the agreement, reached during marathon negotiations over the weekend, satisfied the requirements laid out by the Obama administration for a deal by a 30 April deadline. Even with the agreement, Chrysler is expected to seek Chapter 11 protection, in a case mapped out by the government in advance, including safeguards meant to protect worker benefits, people with knowledge of the company’s plans said Sunday night. A new company would be set up with the best assets of Chrysler, these people said. Fiat of Italy would own 20 percent to 35 percent of the new Chrysler, they said, with the government also holding a stake. Some of the equity in the new company would also be given to Chrysler’s creditors as repayment. These people spoke on condition of anonymity because the deals had not been finalized.
The Treasury Department has also reached an agreement with Daimler of Germany, the former owner of Chrysler, to settle tax and other claims left over from its sale of Chrysler in 2007 to Cerberus Capital Management, the private equity firm. In order to persuade the union to back the sale to Cerberus, Daimler agreed to pay $1 billion to Chrysler if the company’s pension plans were terminated in a subsequent bankruptcy filing. Details of the Treasury’s deal with Daimler were not available.
Last week, the union reached an agreement in principle with the administration and Chrysler that would protect workers’ pensions in the event of a bankruptcy filing and provide for a change in the financing of a health care trust set up in 2007. Under that pension deal, workers would lose some benefits after the bankruptcy filing, but would receive more protection than they would with a Chapter 11 filing that lacked government direction, people with knowledge of the agreement said.
Chrysler, which has received $4 billion in federal loans, is in the final stages of a reorganization process ordered by the government, which includes a mandate to provide financing for half of all union retiree health care using company stock.
In a statement Sunday night, Chrysler said the union agreement “provides the framework needed to ensure manufacturing competitiveness and helps to meet the guidelines set forth by the U.S. Treasury Department”.
Meanwhile, the Canadian Automobile Workers union said Sunday that its members had ratified a cost-cutting deal covering 8,000 Chrysler workers in that country. The deal, which is expected to lead to similar cuts for Canadian workers at General Motors and Ford Motor, cuts workers’ benefits, reduces time off and creates a health care trust for retirees. The union said 87 percent of its members voted in favor of the deal, even though the union’s president, Ken Lewenza, described the negotiation process as “torturous and unfair”.
GM is set to unveil a revised revamping plan on Monday. The union deals increase pressure on Chrysler’s lenders to come to an agreement to reduce the automaker’s $6.9 billion in secured debt. The lenders, a group of banks and private funds led by JPMorgan Chase, are still in talks with Treasury officials over terms of a debt-for-equity exchange to eliminate at least two-thirds of the debt. Talks between the government and the lenders have picked up in recent days, with four proposals having passed between them. While a gap remains over how much the creditors should be repaid— as of Sunday, the two sides were about $2.25 billion apart— it has shrunk over the last two weeks.
In February, Chrysler said bankruptcy would most likely result in the liquidation of the company. But since then, the company has signaled that it could file for bankruptcy protection without having to shut down. “My sense is that it’s not liquidation, that it would be a reorganization,” a Detroit-area Chrysler dealer, Carl Galeana, said Sunday. “I just think a shutdown of a corporation this size, in this economy, would be devastating.”