Banks Resist Gov’t Pressure To Swap Chrysler Debt for Stock

WASHINGTON (Reuters) – Banks that have loaned Chrysler LLC $6.8 billion are resisting government pressure to swap more than $5 billion of that debt for stock, the Wall Street Journal reported on Saturday.

The banks’ reluctance is slowing Chrysler’s attempt to cement an alliance with Fiat SpA (FIA.MI) of Italy by May 1 as well as its attempt to renegotiate a health-care accord with the United Auto Workers union, the newspaper reported on its Web site, citing people familiar with the matter.

Sources familiar with the talks told Reuters on Friday the lenders were open to working out a deal on debt restructuring and those discussions were moving quickly forward.

The sources said the government had suggested a reduction in Chrysler’s debt of as much as $6 billion.

The lenders include JPMorgan Chase & Co (JPM.N), Citigroup (C.N), Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N). As holders of secured debt, they have the right to take control of Chrysler brands, plants and other assets pledged as collateral if the company files for bankruptcy protection.

On Wednesday, the U.S. Treasury gave Chrysler 30 days to broker concessions to improve its financial position with its debt holders, Fiat or its debt holders or face bankruptcy.

All four banks declined comment, as did Cerberus Capital Management CBS.UL, which controls 80.1 percent of Chrysler.