DETROIT (Reuters) - Chrysler continues to make progress in its efforts to complete a proposed alliance with Fiat SpA and qualify for additional government loans, Chrysler Chief Executive Bob Nardelli said on Wednesday.
The U.S. Treasury Department has reached an agreement with Chrysler’s largest creditors to cancel $6.9 billion of debt in exchange for $2 billion in cash, Nardelli confirmed in a memo to staff obtained by Reuters.
“If approved, it would clear a significant hurdle on our continuing journey toward long-term success, but the proposed agreement still needs to be approved by all of the secured lenders,” Nardelli said in the memo.
Chrysler allies were buoyed by the framework deal, but the near-term future of the American icon hinged on several parts coming together, before Thursday’s U.S. government deadline, to prove that the company can be viable again.
Chrysler’s more than 40 lenders were performing due diligence on the terms, a source with knowledge of the banks’ review has said.
The development with lenders came after a weekend agreement between Chrysler and the United Auto Workers to modify the union’s labor contract and reduce the amount of money Chrysler would need to contribute to a retiree health-care trust.
“The UAW leadership unanimously approved a tentative new labor agreement with the company and has sent the agreement on to local union members who will vote (Wednesday) on its ratification,” Nardelli said in the memo.
If the contract changes are ratified, the UAW would end up owning 55 percent of Chrysler. The privately held automaker is controlled by Cerberus Capital Management.
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