Chrysler to Enter Bankruptcy Protection after Creditors Balk at Deal

Chrysler is set to enter bankruptcy protection after the automaker failed to have its debts written off by its lenders prior to a midnight deadline.

That failure to reach a deal was due in large part to Chrysler’s inability to restructure its business, a requirement made by the U.S. government prior to another loan of $6 billion. Chrysler had wanted to pay $2 billion in cash to its lenders and in exchange have its $6.9 billion in secured debt written off.

Chrysler had also been asked to reach a new deal with its main union that would have cut costs as well as establish an alliance with the Italian auto firm Fiat. Those two requirements had been moving forward as the automaker had reached an agreement with the union and had been moving forward with Fiat.

While Chrysler’s banks agreed to the deal it was frowned upon by hedge funds that still hold a large portion of that debt.

The move into Chapter 11 bankruptcy will allow Chrysler time to restructure under the eye of the court while still being allowed to trade. Such a move will protect Chrysler from its creditors and will likely leave them paying those creditors less.

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