"It was unacceptable to let a small group of speculators endanger Chrysler's future by refusing to sacrifice like everyone else.

The failure of some of Chrysler LLC’s creditors to agree to a debt-for-equity swap, tested President Obama’s patience for a month, but not his resolve or his readiness to save the once proud Michigan automaker from oblivion, and give it what he said would be a “new lease on life.”

So the President agreed with the recommendations of his Auto Task Force and directed that Chrysler LLC enter into bankruptcy under Chapter 11, section 363, in a Federal District Court in New York City, which is vastly experienced in such matters. The bankruptcy was filed today.

New Chrysler will emerge “stronger, and more competitive,” the President said.  No further job cuts are anticipated at this time. If all goes well, more jobs will ultimately be created.

The “alliance” with Fiat will create the sixth-largest global automaker, spreading R&D and design development costs over higher volumes, making it more competitive in an increasingly global and consolidating industry.

Fiat is contributing billions of dollars in advanced technology and intellectual property, and offering Chrysler access to its global distribution network.  Fiat’s technology will allow Chrysler to build new fuel-efficient cars and engines in North American factories.

The “appropriate level of shared sacrifice” was not achieved, so Chrysler will go through what is termed a “surgical, short bankruptcy in order to finish the restructuring of its balance sheet and  emerge with as a properly capitalized company that could be competitive,” a senior administration official said in a background briefing that TheDetroitBureau.com participated in.

Chrysler’s largest secured creditors have agreed to exchange their portion of the Company’s $6.9 billion secured claim for a pro-rata share of $2 billion in cash at closing. The Bankruptcy Court will be used to impose this treatment on those lenders that failed to accept the offer, which was accepted by a majority of the lenders.

The President lambasted hedge funds and speculators looking for “unacceptable” taxpayer subsidies.

During the 30 to 60 days the bankruptcy is predicted to take, Chrysler will function normally, suppliers will be paid and people will be able to finance and purchase vehicles because of funding from the U.S. and Canadian governments. Funding  is being provided on about a $3:C$1 ratio, reflecting the highly integrated nature of Chrysler’s operations on both sides of the border.

Employees will get paid, including salary, wages and ordinary benefits.  Workers compensation claims will continue to be paid by Chrysler’s insurers.  Assuming the sale moves forward as expected, Pension Plan and VEBA funding will be transferred to the purchaser.

The U.S. Government will provide $3-3.5 billion in financing during the bankruptcy process. Chrysler Financial will be dissolved and, with the help of government funds, GMAC, the finance arm of General Motors, will supply dealers and vehicle buyers with loans. The number of dealers will be reduced over time.

While the bankruptcy will take care of the restructuring of the balance sheet of the New Chrysler, Fiat Spa will be in operational control of the automaker as it emerges. The agreement between New Chrysler and Fiat includes taxpayer loans of $4.7 billion when New Chrysler exits bankruptcy.

The terms of the loan are: $2.1 billion is due in 30 months; half of the remaining balance is due on the 7th anniversary; the rest on the 8th anniversary of the loan. The interest will be an appropriate combination of cash and payment-in-kind. There is also an additional note of $288 million, which is a fee for making these loans.  The loans will be secured by a first priority lien on all of Chrysler’s assets.

Initially, Fiat will have a 20% stake in New Chrysler; rising in three separate 5% increments when it first sells Chrysler products outside of North America; introduces a new fuel efficient engine; and builds a new 40 mpg Chrysler product in North America. The 35% stake Fiat then has could not be increased to controlling interest of New Chrysler until the taxpayer loans are repaid.