New offer is made to Chrysler lenders, sources say

NEW YORK (AP) — The Treasury Department has made a new offer to Chrysler LLC’s lenders, asking banks and hedge funds that hold $6.9 billion in debt to forgive $5.4 billion and take a 5 percent stake in a Chrysler-Fiat alliance, according to two people familiar with the matter.

The offer was made to the group late Tuesday, these people said. The people asked not to be named because the negotiations are private.

The Treasury Department’s proposal is in response to the lenders’ offer earlier this week to forgive $4.5 billion in Chrysler debt in exchange for a 40-percent stake in the alliance. An administration official confirmed the offer. A Chrysler spokeswoman declined to comment.

The Treasury is negotiating with lenders as Chrysler races to meet a government-imposed April 30 deadline to swap debt for equity, cut labor costs and negotiate an alliance with Italy’s Fiat Group SpA. Chrysler has four plants and thousands of employees in Ohio.

The Auburn Hills, Mich., automaker is living on $4 billion in federal loans and could get another $500 million in working capital to survive through April. But without massive restructuring and a deal with Italian automaker Fiat SpA, Chrysler won’t get any more aid, government officials have said.

The Obama administration is offering an additional $6 billion to Chrysler if it meets the April 30 deadline. If it fails, government aid will end and Chrysler likely faces liquidation.

On Thursday, Fiat Chief Executive Sergio Marchionne said he remains committed to a deal with Chrysler, though he said he could not assess the likelihood that the deal with go through. He also reiterated that Fiat will not put in cash of its own for the deal. Chrysler’s creditors have asked Fiat to put in $1 billion.

Fiat is offering technology in return for 20 percent of Chrysler. The Italian automaker on Thursday reported a first-quarter loss of $531 million.