Bargaining in the shadow of bankruptcy

The government is bargaining with Chrysler debtholders.

First the government offered $1.0 billion, and no equity interest in the new Chrysler, to a consortium of debtholders (mostly banks with pier loans: JPMorgan Chase, Goldman Sachs, Morgan Stanley and Citigroup).

The banks countered with $4.5 billion, and a 40% equity interest.

From CNBC: Treasury Raises Offer to Chrysler Lenders

Treasury has offered the lenders $1.5 billion of first-lien debt and a 5 percent equity stake in a restructured Chrysler ...

It will be interesting to see if the banks budge (and by how much). They claim they can get more than 65 cents on the dollar in liquidation - or $4.5 billion. Just 7 more days ...

Remember that it is the alternatives to agreement that determine the terms of agreement.

UPDATE: