Treasury Said to Ask Chrysler Banks to Cut Debt to $1.5 Billion

(Bloomberg) -- The U.S. Treasury asked Chrysler LLC’s secured lenders to reduce their debt to $1.5 billion from $6.9 billion in exchange for a 5 percent equity stake in the automaker, a person familiar with the negotiations said.

The offer followed by a day a proposal by the lenders to reduce the debt to about $4.5 billion and take 40 percent equity. The person describing the Treasury offer asked not to be identified discussing the private talks.

Treasury and the lenders, made up of four banks and about 45 investment funds, are still far apart as a government deadline of April 30 approaches for Chrysler to cut most of its secured debt, reach cost-saving labor accords and forge an alliance with Fiat SpA. The government has been negotiating with the lenders on Chrysler’s behalf.

The proposal from the lenders also asked Fiat to make a cash contribution to its proposed Chrysler alliance, said people familiar with their offer.

Treasury submitted an initial offer to the lenders early this month to reduce their loan obligations to about $1 billion. The lenders rejected that request and crafted a counter-offer using new business assumptions for Chrysler based on a partnership with Fiat, the people said.

Treasury spokeswoman Jenni Engebretsen declined to comment. The Wall Street Journal reported the offer earlier.

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