UPDATE 2-Chrysler lenders offer to cut debt, take stock

* Chrysler lenders offer terms to restructure $7 bln debt
* Want to keep about $4.5 bln in debt, take over 1/3 stake
* Moody's lowers Chrysler's rating to C
* Nine days remain until Chrysler restructuring deadline

(Adds detail from terms of counter-offer, lawmaker's reaction,
byline)
By Kevin Krolicki and Jui Chakravorty
DETROIT/NEW YORK April 21 (Reuters) - Chrysler LLC's
first-lien lenders have offered to take equity in a
restructured automaker allied with Fiat SpA in
exchange for writing off about 35 percent of the $7 billion
they are owed, according to people with knowledge of the
closed-door talks.
Under the terms of the counter-offer conveyed to the U.S.
Treasury on Monday, the lenders would retain about $4.5 billion
in debt and take a stake of more than a third of a new Chrysler
supported by new U.S. government investment and a
ground-breaking deal with Fiat.
That would mark a much richer payout than U.S. officials
first offered the banks that helped finance Chrysler's 2007
sale to private equity firm Cerberus Capital Management
[CBS.UL].
The gap underscores the tension between a diverse group of
creditors, including more aggressive funds, and the government
officials dictating turnaround terms for Chrysler with just
nine days before a deadline for the No. 3 U.S. automaker to
complete its restructuring talks.
Rep. Gary Peters, a Michigan Democrat whose district
includes Chrysler's headquarters, called the counter-offer "an
affront to taxpayers."
"This is not a serious counter-offer," Peters said in a
statement. "These debt holders were offered fair market value
for the debt, and the banks have responded by asking for a
windfall."
The Obama administration's autos task force had proposed
that creditors write off $6 billion of what they are owed, a
proposal that would have left the group of institutional
creditors holding about $1 billion in Chrysler debt. That would
represent a write-down of 85 percent of the loan value.
The Chrysler counter-offer including equity would allow the
roughly 45 banks and funds that hold Chrysler debt to benefit
from investment gains if it succeeds in a restructuring that
could see operational control shift to Fiat Chief Executive
Sergio Marchionne.
Chrysler has been kept afloat with $4 billion in federal
loans since the start of the year and could get another $500
million before its month-end restructuring deadline established
by the autos task force.
The task force, which is headed by former investment banker
Steve Rattner, has said it is willing to invest another $6
billion in Chrysler if the struggling automaker can complete
the Fiat alliance and agreements to cut debt and costs with its
creditors and major unions.

DEADLINE LOOMS
Chrysler has about $7 billion in first-lien loans that stem
from its breakaway from Daimler AG in 2007. Daimler
still holds a stake of nearly 20 percent in Chrysler although
it has written down that investment to zero.
Chrysler, which is now 80-percent owned by
Cerberus[CBS.UL], lost $8 billion in 2008 and has warned that
it could be forced to liquidate in bankruptcy without new
funding.
A liquidation would split off stronger assets like Jeep and
Chrysler's minivans while shutting factories and dealerships
and eliminating thousands of jobs, analysts have said.
But Chrysler's first-lien creditors could still be paid out
at a higher rate than the 15 cents on the dollar they were
first offered by U.S. officials earlier this month.
Ratings agency Moody's Investors Service on Tuesday cut its
rating to Chrysler to C, saying it was certain that the
automaker would restructure its debt in a way that would be
tantamount to default or that it would file for bankruptcy.
It said creditors could look to recover 20 cents on the
dollar in a default, down from an earlier estimate of 50 cents,
because of the decline in the U.S. auto industry.
Other aspects of Chrysler's debt restructuring talks
include the United Auto Workers. The automaker has asked the
union to take stock in payment for over $10 billion it owes to
a retiree health care trust fund.
Cerberus has offered to write off its own $500 million in
loans to Chrysler.
The steering committee of Chrysler lenders includes
JPMorgan Chase & Co , Goldman Sachs Group , Morgan
Stanley , Citigroup . It was broadened to also
include Oppenheimer Funds, Stairway Capital Management, Elliott
Management and Perella Weinberg Partners.
Peters and other critics have argued that the major banks
that hold the majority of Chrysler's debt were in no position
to insist on a higher payout from the government since they too
have taken emergency funding from the U.S. Treasury.
(Reporting by Jui Chakravorty, Kevin Krolicki, John Crawley
and Kevin Drawbaugh; Editing by Tim Dobbyn)
Keywords: CHRYSLER/LOANS

((kevin.krolicki@thomsonreuters.com; + 1 313 967 1902))

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