Chrysler will soon repay $7.5 billion in bailout money from the U.S. and Canadian governments, another sign that the company is recovering from its near collapse two years ago.
The company will pay back that government debt later this quarter using money from new bank loans and an upcoming bond sale. Chrysler has been negotiating a loan refinancing deal with Morgan Stanley, Goldman Sachs, Citigroup and Bank of America. Details could be disclosed on Monday.
The refinancing would allow Chrysler to repay a big chunk of the bailout from the U.S. and Canada that helped the company get through bankruptcy in 2009. It would also help the automaker save millions by lowering interest payments and bolster its case for a public stock offering as early as the end this year.
The maker of minivans and Jeeps has come a long way since filing for bankruptcy protection on April 30, 2009, when its survival was in doubt. Since then, Chrysler has slashed costs and has begun to see stronger sales for its new vehicles, including the popular Jeep Grand Cherokee SUV.
Chrysler has been trying for about six months to refinance the government loans, which cost it $1.2 billion in interest last year. The loans carry interest rates that average 12 percent, and Chrysler has said it can do much better on the open market.
CEO Sergio Marchionne on Thursday said the refinancing will help Chrysler's bottom line, although he would not say how much the company would save in interest payments.
The company lost $652 million last year and has not turned a net profit since leaving bankruptcy protection in June of 2009.
"I think it's going to make a material difference to our profit-and-loss statement," Marchionne said after touring a Detroit Jeep factory with Treasury Secretary Timothy Geithner. "It's time to try to close the loop on what has been an incredibly necessary intervention" by the governments, he said.
In an appearance later Thursday at the Detroit Economic Club, Geithner said the government wants to sever its ties to Chrysler as quickly as possible, although it will balance that with the need to get the maximum return for taxpayers' investment.
The loans have been a problem for Chrysler and the Obama administration, which approved the bulk of the U.S. bailout. The money has turned off some customers who are unhappy with the government aid for Chrysler and its Detroit rival, General Motors Co.
For Obama, the refinancing would repay a big piece of what the U.S. loaned to Chrysler, eliminating at least part of a thorny political issue ahead of the 2012 presidential campaign.
Marchionne also said he has no doubts that repaying the governments will improve public perception of the company's Jeep, Dodge, Ram and Chrysler brands.
Chrysler took a total of $10.5 billion from the U.S. government to survive two years ago. It already has made some payments, and the refinancing deal will repay another $5.9 billion. Chrysler still owes the government about $2 billion.
Some of that could be repaid when the government sells its 8.6 percent ownership stake in a Chrysler IPO. But Geithner said the most important thing is not whether the government recovers all of its investment.
"We didn't do this to maximize return. We did it to save jobs," he said.
Chrysler also took $1.6 billion from Canada and Ontario that will be repaid in the refinancing. Canada got a 2.2 percent stake in Chrysler and could get more cash in the public stock sale.
Chrysler's biggest owner is a United Auto Workers health care trust fund, which holds a 59.2 percent stake. It plans to sell the stock to pay retiree health care bills that were shifted to the trust by the company.
The company will sell bonds to institutional investors in a private offering. Once the government loans are repaid, Fiat SpA, which runs Chrysler, will pay $1.3 billion to the U.S. automaker. That money also will be used to help repay the government bailout.
In exchange, Fiat will get an additional 16 percent stake in the company, raising its stake to 46 percent. Fiat also can get another 5 percent after it begins making a 40 mpg car in the U.S. That would give it 51 percent ownership and full control of the company.
- Treasury Secretary Timothy Geithner
- government debt
- CEO Sergio Marchionne
- Bank of America
- Goldman Sachs
- Morgan Stanley