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This article was published 30/4/2009 (4170 days ago), so information in it may no longer be current.
TORONTO -- The governments of Canada and Ontario will throw more than $2.5 billion in new financing into Chrysler LLC to help it survive Thursday's filing for Chapter 11 bankruptcy protection in the U.S.
Government officials said there would be no filing for creditor protection in Canada.
The troubled U.S. car company will also partner with Italian automaker Fiat SpA in an effort to give the company a "new lease on life," according to U.S. President Barack Obama.
The new funds will be two-thirds backed by Ottawa and one-third funded by Ontario. In exchange, Ottawa will team with the U.S. Treasury to take a 10 per cent stake in the new Chrysler and the Canadian governments will have the right to appoint one director to the board of the new company.
"While this situation is not ideal, it is the best way forward for the Canadian economy," Prime Minister Stephen Harper said at a news conference in Toronto. "Let not anyone suggest that the money we are giving today is a gift."
Washington is putting up US$8 billion in aid, including up to US$3.5 billion in cash to keep the money-losing company running through the court-led restructuring. Of the new Canadian funds, $1.45 billion will be similar debtor-in-possession financing. The other $1.116 billion is what government officials are calling an "exit loan" for when the new company emerges from Chapter 11.
Chrysler said its Canadian, Mexican and other international operations would not be affected by the bankruptcy-protection filing, but "as a part of the restructuring, most manufacturing operations will be temporarily idled effective Monday, May 4, 2009."
The company said: "Normal production schedules will resume when the transaction is completed, which is anticipated within 30 to 60 days."
Including the $1.2 billion that Ottawa and Queen's Park have already dedicated to Chrysler in the form of bridge loans, the two governments have earmarked almost $3.8 billion for the company. Chrysler's primary Canadian manufacturing operations are in the Ontario cities of Brampton and Windsor.
The support comes with strings on both sides. The Canadian and Ontario governments cannot liquidate their shares for more than three and half years. Fiat or the new Chrysler company can buy our stake at any time.
In exchange, the governments get guarantees the new Chrysler will maintain "at least" 20 per cent of North American production and future investment. If the company breaks with the stipulations, the loans will be called in.
The new company would be created through a sale of all of Chrysler's assets to a new company, pending the approval of a New York bankruptcy court. While the majority of the company would be controlled by the United Auto Workers Voluntary Employee Benefit Association, that 55 per cent stake would be "administered by the U.S. Treasury," according to a statement put out by Fiat.
It is the first time one of the Big Three automakers has been forced into a Chapter 11 restructuring, but Obama emphasized he thought the process would be "quick."
He also called out the "small group" of hedge funds that were the lone stakeholders not to come to an agreement with the company and the U.S. Treasury Department.
"I don't stand with those who held out while others made sacrifices," he said at an early afternoon news conference Thursday.
All of Chrysler's 46 debtors had to agree to cut the US$6.9 billion they're owed for the automaker to avoid creditor protection.
In the end, the company's largest lenders representing 70 per cent of the value of the debt agreed to a debt-for-cash exchange.
But more than a dozen smaller lenders did not. Talks Wednesday between officials with the U.S. Treasury and those lenders, holding out on a US$2-billion debt-for-cash deal, broke down.
Some industry experts said a fast Chapter 11 remake for the automaker may not be realistic.
For a plan of reorganization to be approved under a normal Chapter 11 filing, a majority of secured creditors by number, and two-thirds of secured creditors by the value of the debt they hold, would have to agree to it.
-- Canwest News Service, with files from Windsor Star
Wheels of life
Some major events in the history of the Auburn Hills, Mich.-based automaker:
June 6, 1925: Walter P. Chrysler founds the Chrysler Corporation. Chrysler Canada is formed the same year.
1951: Chrysler's hemi engine, an automotive icon, made its debut. 1960s: Company expands into Europe, forming Chrysler Europe.
1970s: Chrysler struggles with its large, powerful but gas-guzzling vehicles against the backdrop of the 1973 oil crisis. In 1979, it turns to the U.S. government for help to avoid bankruptcy.
1980: Chrysler receives its first bailout of US$1.5 billion in loan guarantees from the U.S. government. The automaker repays its loan in three years.
1990s: The minivan helps the automaker thrive throughout the decade.
1998-2007: It merges with Daimler-Benz Corp. in 1998 and remains part of DaimlerChrysler until 2007.
2007: Cerberus Capital Management acquires an 80.1 per cent stake in DaimlerChrysler from Daimler AG, which retains only 19.9 per cent.
2008: The automaker, hit hard during the financial crisis, registers a US$8-billion loss and U.S. sales plummet 30 per cent to 1.45 million vehicles.
Dec. 19, 2008: The administration of former president George W. Bush announces a US$17.4-billion lifeline for GM and Chrysler.
Dec. 20: Canada quickly pledges C$4 billion in emergency loans for the two companies.
April 30: Chrysler files for bankruptcy protection in the United States.
Sources: Chrysler Canada, Chrysler LLC, Windsor Star files, Wikipedia, Reuters, Chrysler Historical Museum.
-- Canwest News Service
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