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Report: Chrysler To Repay Government Loans By End Of Month


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Chrysler has struck a deal to refinance its debt, which will give the automaker the ability to repay $7.5 billion in government loans as early as next week, according to The Detroit News.

The automaker will offer $3.5 billion in bonds, details to be announced, and will fund the remainder via a $1.3 billion cash infusion from Fiat and a new $2.5 billion loan from commercial sources. Chrysler has been in dialogue with Goldman Sachs, Morgan Stanley, Citigroup and Bank of America to put together the package deal, which will ultimately clear the way for Fiat to gain a larger stake in Chrysler. In exchange for Fiat’s $1.3 billion investment, their ownership of Chrysler would be increased to 46 percent, from the current 30 percent. By year end, Fiat expects to have secured 51 percent of Chrysler.

Chrysler owes the U.S. government $5.9 billion, and it owes the Canadian government $1.6 billion. The existing government loans carry interest rates as high as 20 percent, and Chrysler has been working diligently to find lower interest loans from commercial sources. The loans that will be announced as part of Chrysler’s debt restructuring aren’t as competitive as Chrysler had hoped for, but investors still see that automaker as a risk. Some are concerned that Chrysler’s product mix is heavily dependent upon truck sales, even though the automaker is working with partner Fiat to introduce smaller, more fuel efficient cars like the Fiat 500.

If Chrysler repays the loans as expected, it will do so some six years ahead of schedule. Repayment will also allow Chrysler to work towards a planned initial public offering, which could come later this year depending on market conditions.

[The Detroit News, Autoblog]

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Comments (4)
  1. Not sure I understand the reasoning here... I do understand the desire to say "we are no longer run by the government", but the downside to that is they are giving up some very cheap government loans. Much cheaper, I'm sure than the private debt they are trying to replace the government loans with. Not worth shooting yourself in the foot for a little PR.
     
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  2. @WSE, it's actually the other way around. Since Chrysler posed such a big credit risk when the US and Canadian governments loaned them money, the interest rates on those loans was significantly above commercial rates. Marchionne referred to them as "shyster loans", not understanding that we Americans are more sensitive to criticism than our EU counterparts.
     
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  3. @Kurt, Thanks... I guess if I had read your article a little more carefully, I would have seen that figure further down!
     
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  4. @WSE, no worries - thanks for reading!
     
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