Chrysler is on the Federal line to the tune of $7.46 billion and is reportedly exploring the option of repaying that debt early, before 2013.
The early payment would give Fiat the freedom to increase its stake to 51 percent in the Auburn Hills-based automaker, but is likely to delay an initial public offering until after January 2013. A hypothetical improvement to Chrysler’s balance sheet would be a boost to the automaker’s capital structure (assuming sales keep up as well), and the $7.46 billion is owed to both the United States and Canadian governments. Some of the Federal loans carry as high as a 20-percent interest rate and the majority are set to mature in 2017. Certain shorter-term loans are due by the end of 2011.
Fiat currently holds a 20-percent stake in Chrysler, though another 5-percent increase is coming at the end of this year. Assuming company performance goals are reached in 2011, Fiat is scheduled to bump that stake to 35 percent. Ditching the government loans would be the key to the last 16-percent jump and hitting the desired mark of 51 percent.
Fiat themselves have stated they won’t move for 51 percent until 2013, loan-less or not, but the option will be there early if there’s money in the coffers, the loans are gone, and the business case is sound, according to an expert Barclays Capital research report. The Barclays analysis states Chrysler could save as much as $2 billion with this plan, though the IPO timeframe would be significantly altered. Multiple sources point to Chrysler going public in the second half of 2011.
Chrysler and Fiat boss Sergio Marchionne was recently queried on his companies’ direction during a visit to the Sterling Heights plant and simply said getting Chrysler’s costs under control and stabilizing the automaker is a more pressing concern than watching Fiat’s stake grow. He acknowledged that waiting until after the IPO issue to claim that final 16-percent would likely come at a much higher price to the company.
As the managerial team ponders its tasks and business direction, Fiat is readying its own future by spinning off Fiat Industrial to focus on consumer cars. They could also sell its Magneti Marelli parts division and a stake in Ferrari, all a part of a master plan to ensure survival in a vastly revamped global market.
Source: Automotive News (Subscription required)