Chrysler Not Likely to Pay Back Government Loans

Joshua Duval
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A financial advisor to bankrupt automaker Chrysler said Monday that the company will likely not pay back any of the money it was loaned by the U.S. and Canadian governments.

Ron Manzo, a senior financial advisor to Chrysler, said it is "highly likely" the governments won't recover any of the money they loaned out. The Obama administration last week wouldn't say how much the U.S. government would recover of the $4 billion loan the Bush administration issued, but a government official this week confirmed that the automaker likely would not repay that loan.

In addition to the loans administered last year, Chrysler was also given $3.34 billion from the U.S. government and $1.16 billion from the Canadian government for debtor-in-possession financing. The official who confirmed that the U.S. government wouldn't see its loan repaid would not comment on whether or not the debtor-in-possession financing would be repaid. Manzo said that Chrysler isn't required to pay any interest on the $4.5 billion in debtor-in-possession financing.

The U.S. and Canadian governments will loan Chrysler another $6 billion when it completes its alliance with Fiat. And while we're a little skeptical calling any money given to Chrysler a "loan", it's worth mentioning that Fiat is required to pay back the $6 billion loan if it wants to take majority control of Chrysler.

Obama's administration has allowed Fiat to take a 20 percent stake in Chrysler initially, with the opportunity to increase that stake by increments of 5 percent each time it meets a goal set by the administration. Three goals have been set total, meaning Fiat can retain a 35 percent stake in Chrysler without the repayment of any loans. To achieve more than 35 percent, however, the $6 billion must be repaid.

Source: The Detroit News

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