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

By Jui Chakravorty Das and Megan Davies

NEW YORK (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.