WASHINGTON - WITH just two days left before a government-imposed restructuring deadline, Chrysler LLC took a step away from the brink of bankruptcy on 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 US$6 billion(S$9 billion) in government aid, keeping it alive and preserving its remaining 54,000 jobs.

Under a deal reached on Tuesday with four banks, Chrysler's secured creditors would accept US$2 billion cash to settle the automaker's US$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 haircut 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.

Chrysler cleared a major hurdle over the weekend by reaching a new deal with the UAW that would give the union a 55 per cent stake in the company. Chrysler will use equity instead of cash to fund at least 50 per cent of its US$10.6 billion obligation to a union-run health care trust, and the trust would get a seat on the board.

Fiat spokesman Gualberto Ranieri declined to comment on the possibility of a deal being near. Italian media reported that the viability of the alliance would be announced on Thursday.

Under the proposed alliance, Fiat is offering its fuel-efficient powertrain technology that would help Chrysler expand into the small car market. In return, it would get a 20 per cent stake of the US automaker to start.

If Chrysler is successful, the government has promised another US$6 billion in loans to help survive until its cost-cutting can take effect and Fiat can bring its small vehicles to the US Without a deal, the government said it would not even provide bankruptcy financing and Chrysler almost certainly would end up in liquidation. -- AP