WASHINGTON — With just two days left before a government-imposed restructuring deadline, Chrysler took a step away from the brink of bankruptcy Tuesday when its biggest lenders reached a deal with the Treasury Department to slash the teetering automaker's debt.
Yet Chrysler's fate remains far from assured. If the company's smaller creditors don't get on board, a bankruptcy filing remains a possibility.
But now that Chrysler has a tentative agreement with the United Auto Workers and is closing in on a pact with Italian automaker Fiat Group, Chrysler has cleared nearly all the hurdles ahead of its Thursday deadline. That brings the automaker closer to securing another $6 billion in government aid, keeping it alive and preserving its remaining 54,000 jobs.
"I think this has moved the needle more toward a turnaround," said Mike Boudreau, a director at O'Keefe & Associates, a Bloomfield Hills, Mich.-based turnaround firm. "They still could file for bankruptcy, but they also could go into it with some hope of reorganizing too."
Under a deal reached Tuesday's with four banks, Chrysler's secured creditors would accept $2 billion cash to settle the automaker's $6.9 billion debt.
The Treasury Department has been negotiating with a committee of the creditors, including the big banks Citigroup, JPMorgan Chase, Goldman Sachs and Morgan Stanley. The group also includes several smaller banks and some hedge funds. Messages seeking comment were left for representatives of the banks.
Chrysler and the Treasury still need to persuade the rest of the automaker's 46 secured creditors to go along with the new proposal. Bankruptcy experts have said it may be tough to get them to take a big haircut because their loans are secured by Chrysler's physical assets, things like plants and brands that could provide a better payoff if the company is liquidated.
The banks that are on board hold 70 percent of Chrysler's secured debt, said Brian Johnson, auto analyst for Barclay's Capital, so a Chrysler liquidation now looks like the "least likely route."
"We believe it is increasingly clear that Chrysler will be restructured and avoid liquidation," Johnson wrote in a research report Tuesday.
Boudreau said even if the key deals fall into place, the automaker's complex restructuring still might require filing for bankruptcy protection. There are other issues to address, such as reducing the size of Chrysler's dealer network and finding sources of financing for its customers.
Chrysler cleared a major hurdle over the weekend by reaching a new deal with the UAW that would give the union a 55 percent stake in the company. Chrysler will use equity instead of cash to fund at least 50 percent of its $10.6 billion obligation to a union-run health care trust, and the trust would get a seat on the board.
Factory-level union leaders voted unanimously Monday night to recommend that rank-and-file members approve the concessions. Final approval of the new arrangement could come as early as today.
"It's important to get some wins under your belt," Boudreau said. "One win can lead to another win. The UAW deal led to the bondholder agreement, which could lead to a deal with Fiat."
Fiat spokesman Gualberto Ranieri declined to comment on the possibility of a Chrysler-Fiat deal being near. Italian media reported that the viability of the alliance would be announced Thursday.
A summary of the revised Chrysler-UAW contract says Fiat eventually will own 35 percent of the company.
Chrysler has borrowed $4 billion from the government since the start of the year after the automaker said it wouldn't be able to survive the steep decline in U.S. auto sales without help.
In March, the government's auto task force rejected Chrysler's restructuring plan and determined that the Auburn Hills, Mich., automaker could not become viable without taking on a partner. The government told the company it must ink a deal with Fiat, gain concessions from its unions and get debt holders to cut the amount owed by the company by April 30.
If Chrysler is successful, the government has promised another $6 billion in loans to help survive until its cost-cutting can take effect and Fiat can bring its small vehicles to the U.S. Without a deal, the government said it would not even provide bankruptcy financing and Chrysler almost certainly would end up in liquidation.