Chrysler seeks OK for Daimler, Cerberus settlement

NEW YORK (Reuters) - Chrysler LLC is seeking court approval for a settlement with Daimler AG and private equity firm Cerberus that calls for them to forgive billions in loans to the bankrupt carmaker and contribute to its pension plans, in exchange for Chrysler dropping all claims against them, according to court papers.

German carmaker Daimler would forgive all $1.5 billion of its loan to Chrysler and a $400 million loan to a Chrysler subsidiary, as well as contribute $600 million over two years to the U.S. carmaker's pension plan to reduce the plan's shortfalls, according to documents filed Tuesday in federal bankruptcy court in Manhattan.

Daimler, from which Chrysler was split in 2007, would also continue to provide a guaranty with the Pension Benefit Guaranty Corp, the U.S. agency that insures corporate pensions, for Chrysler's pension funds at a reduced amount of $200 million.

Cerberus, the private equity firm that became the majority owner of Chrysler, will forgive a $500 million loan.

In exchange, all parties "will waive all current and future claims that they may have against each other" and their affiliates under a contributions agreement dated May 14, 2007.

Chrysler filed for bankruptcy on April 30 after being pummeled by sliding auto sales and unable to reach agreement on restructuring its debt.

In April, Chrysler and Italian carmaker Fiat SpA

confirmed a global strategic alliance and Chrysler is moving forward with a plan to sell its best assets out of bankruptcy to "New Chrysler" which will be owned by the government, its workers and Fiat.

Separately, as part of the transition after the Fiat transaction, Chrysler sought court permission to alter the make up of its board of directors, saying "there is no longer a need for the complex corporate governance structure that is currently in place" and there will not be adequate funding to support a large board and management team, according to court documents.

(Reporting by Phil Wahba; Editing by Tim Dobbyn)