Yesterday, we told you that Chrysler was on the brink of announcing a plan to repay its debts to governments of Canada and the U.S. Now, they've gone and done it: according to a Chrysler press release issued this morning, the repayment will officially take place sometime between now and June 30.
Currently, Chrysler owes $5 billion to the feds and $1.6 billion to Canada. So where is Chrysler getting all this cash? According to the release, it's coming from three sources:
- A new loan (likely from some of Chrysler's bailout buddies, including Bank of America and/or Citigroup);
- Debt securities (e.g. bonds) "sold to institutional investors"; and,
- An influx of cash from Fiat, which recently upped its stake in Chrysler from 20% to 30% (a number that will likely jump to 46% after the debts are repaid).
This a smart political move for Chrysler, since it may assuage those who still hold grudges against the automaker for taking federal bailout dough. But far more importantly, it's good for Chrysler's bottom line: the loans Chrysler received from the U.S. and Canada carry interest rates that hover between 11% and 12%. (For that, they could've put the whole sum on a credit card.) Averaged out, Chrysler has been paying over $3 million a day just in interest.
Although details of the new loan haven't been released, it will presumably come at a significantly lower interest rate. Between that break and the influx of interest-free cash -- combined with Chrysler's growing profits, which are currently running about 22% over last year -- the automaker should be sitting much, much prettier when the deal is done. If all goes well, Chrysler might even be in a position to go public with an IPO late this year or early next.
This should hit the news networks a bit later today, coinciding as it does with Treasury Secretary Timothy Geithner's visit to a Chrysler manufacturing facility in Detroit. Expect lots of happy, well-deserved smiles from Tim, Sergio, and the gang in Auburn Hills.
For more information, feel free to check Chrysler's official press release below.
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Chrysler Group LLC Announces Refinancing Transaction
April 28, 2011 , Auburn Hills, Mich. - Chrysler Group LLC (“Chrysler Group”) announced today that it intends, subject to market and other conditions, to repay in full the outstanding obligations under the loans provided to Chrysler Group by the U.S. Department of the Treasury and the Canadian federal and Ontario governments. Chrysler Group intends to complete the repayment during the second quarter of 2011 from proceeds of a new term loan facility and newly issued debt securities to be offered and sold to institutional investors in a private offering exempt from registration under the U.S. Securities Act of 1933. Chrysler Group intends to use the net proceeds of the term loan and the offering, together with the proceeds from the recently announced exercise by Fiat of an option to acquire an incremental ownership interest in Chrysler Group, to repay its loans from the U.S. and Canadian governments in full and to pay related fees and expenses. The completion of the offering, the credit facilities and the equity investment by Fiat under its call option are expected to occur concurrently.The debt securities will be offered and sold in reliance on an exemption from registration under the Securities Act. The debt securities have not been registered under the Securities Act, or the securities laws of any other jurisdiction, and may not be offered or sold in the United States without registration or an applicable exemption from registration. This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities.