Moody’s downgrades Chrysler, Chrysler Financial

Moody’s Investors Service has downgraded the debt ratings of Chrysler and Chrysler Financial. Chrysler’s rating was dropped from Ca to Caa2 and Chrysler Financial’s went from B3 to Caa2.

The move means Moody’s believes there’s an increased likelihood of default by the two companies. In its report, the New York-based ratings agency said: ”The rating action reflects Moody’s view that even with the benefit of government loans, Chrysler will require significant business restructuring over the near term, and that absent successful restructuring a bankruptcy filing could be a likely event in the near term.”

The news of the downgrades comes at the same time that Reuters is reporting that unnamed sources told Bloomberg News that Chrysler and General Motors are both considering pre-packaged bankruptcy filings if they are required to gain financial assistance from the federal government. A pre-packaged Chapter 11 bankruptcy would require debtor-in-possession financing, which neither company has been able to secure from private markets, and carry significant risks.

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