Banks Get New Offer for Debt in Chrysler

By JEFFREY MCCRACKEN The U.S. Treasury, in an escalating back-and-forth that may determine whether Chrysler LLC avoids liquidation, has quickly responded to Chrysler lenders that rejected an earlier Treasury bid to slash the car maker's debt. The Treasury now proposes that the banks and other lenders accept as payment 22% of the $6.9 billion they are owed plus a 5% equity stake in Chrysler, said several people familiar with the matter. That's up from an earlier Treasury proposal that the banks and other lenders accept 15% of what Chrysler owes them and receive no Chrysler stock. More GM Plants to Close in SummerComplete coverage at WSJ.com/DetroitThe lenders, which include Citigroup Inc. and J.P. Morgan Chase & Co., rejected that offer outright and instead proposed Monday they get paid about 65% of the debt, or about $4.5 billion. In addition, the lenders sought a 40% Chrysler stake and a seat on the company's board, according to a copy of the proposal provided by individuals outside the lenders' group. The new government offer leaves the U.S. and Chrysler lenders at least $3 billion apart with one week left before an April 30 Treasury deadline to determine the auto maker's fate. The two sides are also far apart in how big an ownership stake the lenders would get in a restructured Chrysler. If concessions can't be reached with the lenders and the United Auto Workers union by the deadline, the company will likely be forced to liquidate in bankruptcy court. The government's counteroffer, made Wednesday afternoon, offers lenders $1.5 billion of the $6.9 billion owed them by Chrysler. The government response didn't address another demand of the lenders, that Fiat SpA put $1 billion into an alliance it proposes with Chrysler. The Treasury declined to comment as did a spokesman for the lenders. The UAW, which Chrysler owes about $10.6 billion for retiree health-care costs, would get $1 billion in 2009 and $2 billion in 2010 plus a stake in the restructured Chrysler under the most recent government proposal to lenders. Write to Jeffrey McCracken at jeff.mccracken@wsj.com