Automotive News reports that Cerberus, the private equity firm that owns 80 percent of Chrysler, is offering to swap a stake in the company to debt holders in the company:
 

In brighter times, Cerberus Capital Management LP hoped to save Chrysler LLC, which it called an American automotive icon. Now the private-equity firm is offering its entire equity stake in the automaker to labor and creditors to help Chrysler secure its $4 billion portion of a federal loan package.

Cerberus said it was making the offer to help Chrysler “make the accommodations necessary to affect the restructuring” of the company. Under the federal loan announced Friday by President George W. Bush, Chrysler needs to swap equity for debt to reduce its debt load and to fund half of its obligation to the UAW Voluntary Employee Beneficiary Association trust with stock…

“Cerberus is really focusing on the lending side of the automobile industry,” said Lars Luedeman, head of auto analysis for Grant Thornton in Southfield, Mich., referring to Cerberus’s stake in Chrysler Financial and GMAC “They’re effectively offering up the automotive side of the operation.”…

Cerberus’s move to give up its equity stake could help the restructuring, said Kimberly Rodriguez, also with Grant Thornton.

“It’s really a pre-packaged bankruptcy without the pre-pack where equity is no longer in control,” she said. “It’s a cooperative way of handing over your position in a company to help it see another day. It’s an industry-supportive move by Cerberus, which is more beneficial to the other OEMs.”

Despite repeated denials from both camps, there are rampant rumors that GM is in negotiations to buy Chrysler.