April 24 (Bloomberg) -- Chrysler LLC’s lenders, holding $6.9 billion in debt, have offered to reduce their loan amounts by 46 percent to $3.75 billion, people familiar with the negotiations said.

They also would agree to drop a condition that Fiat SpA contribute cash to a proposed Chrysler alliance, said the people, who declined to comment because the talks are private. An earlier request for a 40 percent stake in Chrysler after the debt is lowered would remain, the people said.

The offer was received today by the U.S. Treasury, which is negotiating on Chrysler’s behalf, an official in President Barack Obama’s administration said.

“I am pleased that the pace of negotiations has accelerated and am hopeful that debt holders will accept a fair deal so that Chrysler can avoid bankruptcy and hundreds of thousands of families will be protected,” said Representative Gary Peters, a Michigan Democrat, in an e-mailed statement.

Chrysler needs an agreement with the lenders by the end of this month as part of conditions to keep $4 billion in U.S. government loans and get as much as $6 billion more. The new offer is a response to a Treasury request earlier this week for the lenders to cut their debt to $1.5 billion in exchange for a 5 percent stake in the Auburn Hills, Michigan-based automaker.

Jenni Engebretsen, a Treasury spokeswoman, and Lori McTavish, a Chrysler spokeswoman, declined to comment. The Wall Street Journal reported the latest offer earlier today.

Treasury officials initially asked that the lenders take $1 billion and offered no equity in Chrysler on April 2 in a meeting in Washington. After getting a new business plan for Chrysler, the lenders counter-offered with a proposal to cut the debt to $4.5 billion and asked for a 40 percent equity stake and a cash investment from Fiat into Chrysler.

The lender group is composed of New York-based JPMorgan Chase & Co., Goldman Sachs Group Inc., Citigroup Inc., Morgan Stanley and about 45 investment funds.

The lenders’ steering committee includes the four banks as well as Elliott Management Corp., Stairway Capital, Perella Weinberg Partners and Oppenheimer Funds.

The banks and funds declined to comment on the offer.

To contact the reporter on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net

Last Updated: April 24, 2009 18:14 EDT