NY Times: Feds prepping Chrysler for Chapter 11

As previously reported, the New York Times, citing unnamed sources with direct knowledge of the matter, is reporting the Treasury is preparing a Chapter 11 filing for Chrysler LLC.

Under the scenario described, the U.S. and Canadian governments would provide the necessary financing for Chrysler’s operations while the company is under court supervision. Fiat would be able to conclude the details of its alliance with Chrysler

The sources also say the government has a deal with the UAW that would protect retirees benefits. This could mean the bankruptcy would be filed in Detroit instead of New York or Delaware, both of which tend to be more investor-friendly.

Efforts to avoid the filing are still underway. Canadian Auto Workers union President Ken Lewenza said he expects to have a deal with Chrysler today. The United Auto Workers union could also be close to a deal, leaving Chrysler’s creditors as the only holdouts preventing a successful completion of Chrysler’s reorganization. Fiat CEO Sergio Marchionne has already said agreement with the unions was key to finalizing the proposed alliance.

The Obama administration is already stepping up pressure on Chrysler’s bankers to make significant concessions and reduce the automaker’s $7.4 billion in outstanding debt.