Obama calls on Chrysler bondholders to sacrifice (2nd Roundup)

Apr 29, 2009, 21:12 GMT

Washington - US President Barack Obama called on Chrysler LLC bondholders to make sacrifices in order to keep the nation's third-largest carmaker from filing for bankruptcy.

Obama, speaking at a town hall meeting in Arnold, Missouri, credited the carworker unions for taking the necessary steps to help Chrysler avoid bankruptcy protection by accepting a new labour agreement.

'One of the key questions now is: Are the bondholders, the lenders, the money people, are they willing to make sacrifices as well?' Obama said. 'We don't know yet.'

Chrysler has until Thursday to present a plan to prove its long- term viability, or risk losing the 4.5 billion dollars it received in emergency government loans. Chrysler is also working on a merger with Italian carmaker Fiat.

Chrysler is still waiting to hear from its smaller lenders about a proposal to accept 2 billion dollars in cash in return for wiping out 6.9 billion dollars in debt. Larger creditors like JP Morgan and Citibank have tentatively agreed. A rejection by the small banks would push Chrysler into bankruptcy.

Financial news agency Bloomberg reported late Wednesday that Obama intended to announce Thursday that Chrysler will file for Chapter 11 bankruptcy. The report, citing 'people familiar with the matter,' did not state whether the debt negotiations had failed.

Instead, the report said Chapter 11 would lead the way to a merger with Italian carmaker Fiat, which would take a 20-per-cent stake in Chrysler. A union retiree health care trust fund would own 55 per cent and the government would control the rest, Bloomberg said.

Chrysler CEO Robert Nardelli, in a letter to employees obtained by German news agency dpa, expressed optimism earlier Wednesday that the company would survive without seeking bankruptcy, pointing to the deal with the union on labour agreements and the willingness of the big creditors to accept the debt offer.

'I'm encouraged by this progress and I want you to know I deeply appreciate the sacrifices made by so many constituents to help us reach the restructuring targets established by the government,' he said.

Obama imposed Thursday's deadline on Chrysler to present restructuring plans or lose continued government financing. The largest US carmaker, General Motors, faces a similar deadline June 1.