and DAN STRUMPF

and DAN STRUMPF


WASHINGTON — With just two days left before a government-imposed restructuring deadline, Chrysler LLC 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 SpA, 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 with four banks, Chrysler's secured creditors would accept $2 billion cash to settle the automaker's $6.9 billion debt, according to the people familiar with the talks. The people spoke on condition of anonymity because the agreement had not been formally announced.

The Treasury Department has been negotiating with a committee of the creditors, including the big banks Citigroup Inc., JPMorgan Chase & Co., Goldman Sachs Group Inc. 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 cut 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."