UPDATE 1-U.S. talks to Chrysler lenders to cut debt-sources

(Adds details on talks, background on loans, bylines)
By Jui Chakravorty Das and Megan Davies
NEW YORK, April 3 (Reuters) - Chrysler LLC's lenders are in
talks with the U.S. government to reduce the automaker's debt
by swapping some of it out for equity, new debt or a lesser
amount in cash, sources familiar with the talks said on
Friday.
The lenders, JPMorgan Chase & Co , Citigroup
Goldman Sachs Group Inc and Morgan Stanley , are
open to working out a deal. The discussions are moving quickly,
with several different offers from the government on the table,
the sources said.
The people declined to be identified because the talks are
confidential.
All four banks declined comment, as did Cerberus Capital
Management , which controls 80.1 percent of Chrysler.
Chrysler said it is "committed to working closely with all
constituents, the administration, U.S. Treasury and the task
force over the next 30 days to reach a successful conclusion."
Chrysler has been surviving on a $4 billion emergency loan
from the U.S. government and has now been given 30 days by the
Obama administration to complete an alliance with Italy's Fiat
SpA or face a cut-off of its government funding that
could force its liquidation.
The government has rejected a claim by Cerberus that
Chrysler can be viable on its own, citing its relatively small
size, weak product line-up and declining U.S. market share.
The lending banks are holders of first-lien secured debt,
meaning they are first in line to be paid if the company files
for bankruptcy. Chrysler's assets were pledged as collateral
for the loans.
However, the willingness of the banks to get a deal done
shows the government's influence on the banks, who themselves
have received federal aid.
The four banks and Bear Stearns underwrote a $7 billion
term loan that provided working capital for the automaker in a
deal that was agreed in the summer of 2007.
That bank debt is worth far less than $7 billion on the
open market. The average bid for Chrysler's automotive
operations bank loan is around 15.2 cents on the dollar.
Portions of that senior secured debt were sold to roughly
50 other institutions, a source familiar with the credit group
said, reducing the exposure of the original lenders.
JPMorgan's purchase of Bear Stearns meant its exposure
increased to $2.5 billion, but it is unclear how much of that
has been hedged or at what value it is being held on the bank's
books. Citi has under $1 billion, one of the sources said.
Goldman Sachs sold some of its loans last year, sources
previously told Reuters Loan Pricing Corp.
(Reporting by Jui Chakravorty and Megan Davies; Editing by Tim
Dobbyn)
((jui.chakravorty@thomsonreuters.com; +1 646 223 6033; Reuters
Messaging: jui.chakravorty.reuters.com@reuters.net))
Keywords: CHRYSLER/LENDER

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