Chrysler Bankruptcy Filing Gives VEBA 55% Share of New CompanyChrysler Group on Thursday filed for bankruptcy under a plan developed by the Obama administration, which grants a 55% stake in the restructured firm to a health care trust fund for retired autoworkers, the Washington Post reports. The plan will allow the company to relieve its debt, receive about $10 billion in new government aid and be merged with Italian automaker Fiat. Fiat would have a 20% stake in the firm, with that share potentially rising to 35% over time; the federal government would have an 8% stake; and the Canadian government a 2% stake (Whoriskey et al., Washington Post, 5/1).
The equity share represents about half of the firm's $10.6 billion obligation to the voluntary employees' beneficiary association, operated by United Auto Workers, that will pay for health benefits for retirees and their spouses starting in 2010. Short-term loans granted in December 2008 by then-President George W. Bush carried a caveat that the automakers ask UAW to accept half of their obligations to the VEBA in the form of company stock (Kaiser Daily Health Policy Report, 4/28). Chrysler also has agreed to issue a $4.6 billion note to the fund, payable over 13 years with an interest rate of 9%. The trust also will be able to name one member to the Chrysler board of directors (Reuters/USA Today graphic, 5/1). President Obama said the plan would give the automaker a "new lease on life" (Washington Post, 5/1).
A committee representing the bondholders of General Motors on Thursday proposed an alternative plan for restructuring the company by the June 1 deadline imposed by the federal government. The bondholders' plan would grant the VEBA about a 41% stake in the new company to fully offset the $20 billion owed to the fund by GM. Bondholders would receive 58% of the new company in exchange for forfeiting $27 billion in unsecured GM bonds. The plan comes in response to a proposal released by GM this week, which would have used 39% of the firm's equity to fund half of its VEBA obligation and given the federal government a 50% stake in the new company in exchange for forgiving at least half of the automaker's outstanding Treasury Department debt, which GM estimates would be about $10 billion. The bondholder committee called the GM plan "a blatant disregard of fairness" (Sanati, New York Times, 5/1).
They said the alternative plan would be more fair because it grants equity to the union and the bondholders based on what they are owed (AP/Chicago Sun-Times, 4/30). According to the New York Times, the bondholder plan would "put the burden on the VEBA instead" of the bondholders. In addition, its provision that the VEBA forfeit all future claims in exchange for company stock is prohibited under the rules established between the VEBA and GM (New York Times, 5/1).