Chrysler management has previously balked at the interest payments tied to its loans from the United States and Canadian governments, but the company may be free from those hurdles by the end of summer. The automaker announced today that, if market conditions remain stable, it hopes to have its remaining $7.5 billion in bailout loans repaid by the end of June.
How? A substantial fiscal shuffle, for starters. Chrysler plans to secure the funds needed repay its outstanding government loans from the proceeds of a new term loan facility and new debt securities sold privately to financial institutions. The Detroit News reports Chrysler may use part of a $1.27 billion payment from Fiat — tied to the Italian automaker ratcheting up its stake in the company from 30 to 46 percent — to help cover any remaining portion of the loan, along with related fees and expenses.
Although Fiat’s plan to increase its stake in Chrysler was previously approved by the government, the automaker was prevented from doing so until the federal loans were paid off. Chrysler’s official announcement on the matter states “the completion of the offering, credit facilities, and equity investment by Fiat under its call option are expected to occur concurrently.”A spokesperson from the automaker confirmed that existing stakeholders (i.e. both governments and the United Auto Workers) gave the go ahead for the transactions to occur simultaneously.
Executives will reportedly commence a road show of sorts to hawk its newly created private securities to institutional investment firms over the next few weeks. Chrysler will call on Bank of America, Citigroup, Goldman Sachs, and Morgan Stanley to assist in the deal.
As previously reported, the Italian automaker cannot officially take a controlling 51-percent stake in Chrysler until it builds a 40-mpg vehicle on American soil in accordance with guidelines setup by the U.S. treasury. Once this refinance deal is complete, Chrysler is expected announce an actual initial public stock offering either in late 2011 or early 2012.
Source: Chrysler, Detroit News