Cerberus Capital Management suffers total loss on Chrysler holding ~ WP

Chrysler, the country's third-largest auto company, filed today for Chapter 11 bankruptcy protection under a plan that President Obama said will give the troubled automaker "a new lease on life."

"I have every confidence that Chrysler will emerge from this process stronger and more competitive," Obama said at a noon press conference, adding, "This is not a sign of weakness, but rather one more step on a clearly charted path toward Chrysler's revival."

Chrysler, one of the three pillars of the American auto industry, filed for bankruptcy this afternoon after last-minute negotiations between the government and the automaker's creditors broke down yesterday. U.S. officials had offered Chrysler's secured lenders $2.25 billion in cash if they would agree to writedown the $6.9 billion in secured debt that the company owed. But a small group of hedge funds refused the 11th-hour deal.

An administration official this morning expressed disappointment, saying the holdouts had failed to "do the right thing," but that "their failure to act in either their own economic interest or the national interest does not diminish the accomplishments made by Chrysler, Fiat and its stakeholders, nor will it impede the new opportunity Chrysler now has to restructure and emerge stronger going forward."

"I don't stand with those who held out when everybody else is making sacrifices," Obama said at the White House today.

Shortly before the president's remarks, a group claiming to represent the holdouts on the deal released a statement claiming that they had been "systematically precluded" from direct negotiations with the government in favor of creditors who had previously received assistance from the government.

Chrysler chief executive Robert Nardelli announced today that he will return to Cerberus Capital Management as an adviser.

"Now is an appropriate time to let others take the lead in the transformation of Chrysler with Fiat," said Nardelli in a statement. "I will work closely with all of our stakeholders to see that this new company swiftly emerges with a successful closing of the alliance."

The company's bankruptcy filing, and the U.S. government's attempt to save it, amounts to another extraordinary intervention in the economy and a landmark event in the history of the American auto industry.

Under the administration's detailed plan for a "surgical bankruptcy," ownership of Chrysler would be dramatically reorganized, the leadership of Italian automaker Fiat would take over company management and the U.S. and Canadian governments would contribute more than $10 billion in additional funding.

Company and government officials had feared that a bankruptcy would stain the brand, shake customer confidence and erode sales, but the administration said it would seek to use the process to create a new Chrysler company. Its ownership would be divided, with the company's union retiree health fund receiving a 55 percent stake, Fiat would claim as much as a 35 percent share and the United States would take 8 percent. The Canadian government would receive two percent.

The automaker's current majority owner, the private-equity firm Cerberus Capital Management, would have its holdings wiped out.

During the bankruptcy, the governments would provide $4.5 billion in new funds, with 80 percent coming from the United States and 20 percent from Canada, which hosts a number of Chrysler operations. As the company emerged from its reorganization, the United States and Canada would provide another $5.63 billion, the sources said. The U.S. funds come from the government's Troubled Assets Relief Program.

http://www.washingtonpost.com/wp-dyn/content/article/2009/04/30/AR2009043001639_pf.html