Tag Archive | "Chrysler Group LLC"

Chrysler to Fully Repay $7.53 Billion in U.S., Canada Loans This Quarter


Chrysler Group LLC Chief Executive Officer Sergio Marchionne said repaying U.S. and Canadian government debts will elevate the image of the automaker’s brands after its bankruptcy two years ago, reported Bloomberg.

The automaker said today that it plans to repay $7.53 billion in loans from U.S. and Canadian governments this quarter as it moves toward an initial public offering and a merger with its Italian partner Fiat SpA. While the government-funded bailout hurt the company’s public perception, the damage wasn’t “lethal,” he told reporters today in Detroit.

“There’s not a single doubt in my mind that once we manage to repay the U.S. and Canadian governments that the perception of our brands is going to improve,” Marchionne said. “It will be a great accomplishment if we can get it all done within two years since we came out of bankruptcy.”

Proceeds from a private offering of a term loan and debt securities to institutional investors will be used to repay the money to the governments this quarter, Chrysler said in a statement. The company will offer a $3.5 billion term loan, $2.5 billion in bonds and seek a $1.5 billion revolving credit line, said two people familiar with the plan.

Marchionne has said interest as high as 14 percent on the U.S. borrowings and 20 percent on the Canadian debt kept the automaker from reporting a net profit. The loans must be repaid before Fiat, which Marchionne also runs, can increase its stake to 51 percent.

“Chrysler will have meaningful savings when compared with the cost of the government loans,” said Eric Hauser, a Credit Suisse Group AG analyst in London, who estimated the carmaker may reduce interest expenses by about $270 million.

Morgan Stanley, Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc., the four leading the financing, are holding a conference call today with seven secondary banks to brief them on the proposal, said one person familiar with the plan, who asked not to be identified discussing private matters.

Morgan Stanley is arranging the term loan and Bank of America is managing the bond offering, said the people familiar with the plan. A bank meeting on the term loan may come as soon as next week, they said.

Marchionne, who also runs Turin, Italy-based Fiat, is slated to release Chrysler’s first-quarter results on May 2. He is pushing Chrysler to earn as much as $500 million in net income this year, its first annual profit since emerging from bankruptcy reorganization in 2009.

Chrysler’s announcement came before a visit to Detroit by U.S. Treasury Secretary Timothy Geithner. He toured Chrysler’s Jeep factory there and is scheduled to speak to the Detroit Economic Club. Geithner didn’t speak to reporters at the assembly plant.

The new debt securities will be exempt from registration under the U.S. Securities Act of 1933, Chrysler said in the statement.

The face values of the debts to the U.S. and Canadian governments are $7.53 billion, according to Chrysler’s Feb. 25 Securities and Exchange Commission filing. The refinancing includes $1.27 billion Fiat will pay to purchase 16 percent of Chrysler, raising the Italian automaker’s stake to 46 percent.

The final 5 percent needed to gain control will come later this year after meeting a government requirement for making a fuel-efficient vehicle, Chrysler has said.

The automaker may hold an initial public offering this year or next year, Marchionne has said.

The refinancing should lower interest costs and make Chrysler’s eventual stock offering more attractive, said Dennis Virag, president of Automotive Consulting Group in Ann Arbor.

“When you look at the cost of capital today, the cost of borrowing, it’s extremely low,” he said in a telephone interview. “Anyone that can get out of higher cost debt for lower cost debt is a no brainer.”

Fiat Chairman John Elkann said today “all options are open” on the timing of a merger of the two carmakers. Exor SpA, Fiat’s largest shareholder, may dilute its stake in the company once the combination takes place, said Elkann, who also runs Exor as the representative of the controlling Agnelli family.

Fiat rose 15 cents or 2.1 percent to 7.22 euros as of the close of trading in Milan today. The shares have gained 7.8 percent this year, valuing the Italian carmaker at 8.94 billion euros ($13.3 billion).

Fiat gained a Chrysler holding as part of the U.S. automaker’s government-backed restructuring. In exchange for sharing management and technology, as well as reaching operational milestones, Fiat receives as much as 35 percent of Chrysler without paying any cash. It currently has 30 percent.

Chrysler’s capital infusion may give the U.S. Department of Energy “additional comfort” about the automaker’s financial structure, Marchionne told analysts last week. After the Fiat stake increase is completed, Chrysler will likely be able to obtain as much as $3.5 billion in low-interest loans, he said.

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Treasury Secretary Geithner To Meet GM, Chrysler CEOs, Other Executives


WASHINGTON – Treasury Secretary Tim Geithner will hold a meeting with chief executives of major Michigan companies, including General Motors Co. CEO Dan Akerson.

During his visit Thursday to Detroit, he will hold a private roundtable discussion with CEOs and top business leaders including Ford Motor Co. Chief Financial Officer Lewis Booth to gauge the state of Michigan’s economy. He will also meet with Chrysler Group LLC CEO Sergio Marchionne when he tours the Jefferson North Assembly plant, reported The Detroit News.

Geithner will make remarks and take questions when he’s interviewed in a forum at the Detroit Economic Club during his first visit to Detroit since taking office in January 2009.

Chrysler plans to formally announce Thursday its intent to refinance its $7 billion in government loans to coincide with Geithner’s visit. Chrysler may confirm the four banks involved in the financing. As previously reported, they include Goldman Sachs, Morgan Stanley, Citigroup Inc. and Bank of America Corp.

The company could launch a debt offering as early as next week after it reports first quarter results Monday.

Chrysler is expected to launch a debt offering under Rule 144A, which means the company does not have to file a public registration statement with the Securities and Exchange Commission, but can be sold only to qualified financial institutions. It’s still not clear what the mix of debt and bonds offered will be.

The automaker is also close to winning a credit rating — a key step needed to refinance its debt. It has been in talks with Standard and Poor’s and Moody’s to finalize a credit rating. Chrysler paid more than $1.2 billion in interest on its government loans last year.

As part of refinancing its loans, Chrysler will give up its $2.5 billion in untapped U.S. and Canadian loans. The company is also working to obtain a $2 billion or more revolving line of credit from private banks.

Last week Fiat said it would acquire a 16 percent stake in Chrysler for $1.27 billion, contingent on Chrysler refinancing its government loans. Chrysler will mount a roadshow to sell the offering. After it repays the debt, Fiat can obtain another 5 percent of Chrysler — boosting its overall stake to 51 percent.

One reason Fiat acted was that the price it had to pay for the Chrysler stake would have increased if it waited until after Chrysler reports earnings — and possibly a profit — on Monday.

The U.S. and Canadian governments hold about a 10 percent stake in Chrysler. Geithner plans to hail the government’s $85 billion bailout and the fact that it saved by some estimates at least 1 million jobs.

Geithner oversees the government’s 26 percent stake in GM as part of its $49.5 billion bailout and will have to decide when the government sheds its remaining 500 million shares in GM. A lockup period barring the government from selling GM stock ends May 22.

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Chrysler Said To Plan To Borrow $6 Billion To Pay Off U.S. Government Debt


Chrysler Group LLC, the U.S. automaker operated by Fiat SpA, is planning to borrow about $6 billion to pay off government debt as Fiat moves to increase its ownership, people familiar with the plan said.

Details are still being completed on the debt and may be announced as soon as next week, said the people, who asked not to be identified revealing private plans. Chrysler has said its effective interest on the borrowings from the U.S. is as high as 14 percent and as much as 20 percent on the Canadian debt, reported Bloomberg.

Reducing the interest expense should improve profits. Sergio Marchionne, chief executive officer of both automakers, is slated to release Chrysler’s first-quarter results on May 2. He is pushing Chrysler to earn as much as $500 million this year, its first annual profit since emerging from bankruptcy reorganization in 2009.

Eileen Wunderlich, a spokeswoman for the Auburn Hills, Michigan-based automaker, declined to comment on refinancing plans.

The refinancing plan includes $1.27 billion from Fiat as part of its plan to execute an option to increase its ownership stake to 46 percent from 30 percent after the governments are repaid, said the people familiar with the plan.

The face values of the debts to the U.S. and Canadian governments are $7.53 billion, according to Chrysler’s Feb. 25 Securities and Exchange Commission filing. Those debts must be repaid before Marchionne can exercise his option to purchase the 16 percent stake.

Fiat said last week it aims to exercise that option in the second quarter. The automaker may hold an initial public offering this year or next year, Marchionne has said.

The new debt may be a mixture of loans and bonds, the people said. Marchionne wants it completed by the end of May and Chrysler executives may begin a roadshow soon after the announcement to pitch the debt as an investment, they said.

Chrysler is also expected to get about $2 billion in revolving loans, one of the people said.

Fiat gained control of Chrysler as part of the U.S. automaker’s government-backed restructuring. In exchange for sharing management and technology and for reaching operational milestones, Fiat receives as much as 35 percent of Chrysler. It currently has 30 percent. Marchionne has said he expects to get the final 5 percent by the end of the year.

In conjunction with the purchase option, the Turin, Italy- based automaker would hold a 51 percent stake.

Chrysler’s capital infusion may give the U.S. Department of Energy “additional comfort” about the automaker’s financial structure, Marchionne told analysts last week. He said that he expects that after the Fiat stake increase is completed, Chrysler will be able to make progress and obtain as much as $3.5 billion in low-interest loans.

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Fiat May Raise Chrysler Stake To 46 Percent


TURIN – Fiat S.p.A. could raise its stake in Chrysler to 46 percent from 30 percent now by June, two persons with direct knowledge of the matter told Automotive News Europe.

Talks with international investment banks on refinancing Chrysler’s debt with the U.S. and Canadian governments are at an advanced stage, paving the way for Fiat to buy a further 16 percent of Chrysler by the end of June, the Italian newspaper Corriere della Sera reported on Thursday.

“This is the real goal Sergio Marchionne is working at,” the paper said. “He wants to do it by June. He might be able to do it a bit earlier.”

Fiat declined to comment on the report.

A Fiat source told ANE that “it is technically possible” for Fiat to get to 46 percent of Chrysler by June. Whether Fiat raises its Chrysler stake depends on how talks with the banks turn out.

On Monday, Marchionne, who runs both Fiat and Chrysler, said the U.S. automaker would refinance its onerous U.S. and Canadian government debt by June.

Also on Monday, he confirmed that Fiat wanted to get a majority stake in the U.S. group by the end of 2011, but did not elaborate on the steps needed to achieve this goal.

According to Chrysler’s April 6 filing with the U.S. Security and Exchange Commission in preparation for an eventual IPO, Chrysler must reduce its debt to the U.S. and Canadian governments to below $4 billion for Fiat to increase its Chrysler stake to 46 percent.

Chrysler currently owes the U.S. and Canadian governments $7.4 billion loaned in June 2009 when the automaker exited bankruptcy protection and Fiat took management control.

Before Fiat can take a majority stake in Chrysler, the U.S. automaker must fully pay off the government loans.

Fiat may pay $1.14 billion to exercise for an additional 16 percent of Chrysler if Marchionne makes the purchase in 2011 and $1.37 billion if he buys it next year, according to JPMorgan Chase & Co. analyst Ranjit Unnithan.

Fiat would also have to renegotiate a so-called ‘Incremental Equity Call Option’ to buy an additional 16 percent stake in Chrysler. The option currently is set to begin on January 1, 2013 and elapse on June 30, 2016.

Philippe Houchois, head of European auto research at UBS in London said: “There is a lot of flexibility in the contract to achieve control of Chrysler, so Fiat could exercise its 16 percent call option if it reduces the loans to below $4 billion.”

It could then wait for the full loan repayment before receiving the last 5 percent stake needed to reach a controlling 51 percent, he said.

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Fiat Raises Chrysler Stake To 30 Percent In Push To Gain Control Of U.S. Carmaker


Fiat SpA increased its Chrysler Group LLC holding to 30 percent, boosting Chief Executive Officer Sergio Marchionne’s chances of gaining control of the American carmaker before pursuing a share sale.

The CEO increased the holding by 5 percent after agreeing with the U.S. Treasury Department to sell Chrysler models under the Fiat badge in Brazil and Europe, the automakers said today. The deal meets a requirement that 90 percent of Fiat dealers in the two regions offer Chrysler products and allows the carmakers to avoid negotiating new dealership agreements, reported Bloomberg.

Marchionne, who runs both automakers, aims to increase Fiat’s stake to 51 percent by the end of 2011 as he prepares the Auburn Hills, Michigan-based company for an initial public offering. Marchionne is pushing Chrysler to post its first net profit this year since emerging from bankruptcy in 2009 as he works to close a refinancing deal to repay government loans.

“There’s no denying that they’re running ahead of their own schedule, and this lends further credibility to Marchionne’s claims of getting to a 51 percent stake,” said David Arnold, a London-based automotive specialist at Credit Suisse, which has an “underperform” rating on the stock. The bigger issue for Fiat is refinancing Chrysler’s debt, he said.

The U.S. Treasury and other holders approved the revised agreement on European and Brazilian sales within the past week, Chrysler spokeswoman Eileen Wunderlich said in a phone interview. Marchionne said in October meeting the original requirement was difficult because of regulations governing dealers in the South American nation, where Fiat has the largest share of the market.

Today’s deal also pools Chrysler and Fiat vehicles in Europe for emissions ratings, and compensates Chrysler for Fiat using its technology outside North America. An element that didn’t change required Chrysler to meet a goal of $1.5 billion in revenue outside North America.

“It broadens the Chrysler Group-Fiat partnership and then it enhances the Chrysler Group’s international position,” Wunderlich said of the plan.

Fiat traded down 5 cents, or 0.8 percent, to 6.47 euros as of 9:41 a.m. in Milan trading. The stock has declined 3.4 percent this year, valuing the Turin, Italy-based carmaker at 8.04 billion euros ($11.6 billion).

The United Auto Workers union’s retiree health-care trust now owns 59.2 percent of Chrysler, according to the statement. The U.S. Treasury holds 8.6 percent, while government entities in Canada have 2.2 percent.

Fiat agreed with the U.S. government after the bankruptcy to share technology and management with Chrysler in exchange for an initial 20 percent holding, with performance targets attached to the deal to increase the stake to 35 percent without paying any cash. Fiat can buy the remaining 16 percent needed to reach 51 percent.

Fiat may pay $1.14 billion to exercise its call option on the last 16 percent if Marchionne makes the purchase in 2011 and $1.37 billion if he buys it next year, according to JPMorgan Chase & Co. analyst Ranjit Unnithan, who has an “underweight” rating on the stock. The cost is linked to Chrysler’s earnings.

The Italian carmaker raised its stake to 25 percent in January after Chrysler began production of a Fiat-derived small engine in the U.S. Fiat expects to increase its holding to 35 percent by the fourth quarter after meeting a requirement for Chrysler to assemble a Fiat-derived car in the U.S. that gets 40 miles per gallon, Marchionne has said.

Fiat has 700 dealers in Latin America, including 550 in Brazil. Brazilian law prohibits Fiat from forcing the dealers to become Chrysler franchises, said Stephan Keese, head of the automotive practice for Roland Berger Strategy Consultants in Sao Paulo.

Brazil is Fiat’s second-largest market by revenue, trailing Italy. The company sold 761,400 passenger and light-commercial vehicles there last year. Chrysler delivered 3,952 vehicles in the country in 2010, according to J.D. Power & Associates, a market researcher based in Westlake Village, California.

Chrysler’s best-selling vehicle in Brazil is the Mexico- built Dodge Journey sport-utility vehicle, which starts at 82,900 reais ($52,300). The Journey begins at $22,245 in the U.S., according to the brand’s website. The automakers plan to rename the Journey as the Fiat Freemont for Brazil and Europe.

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Fiat’s Chrysler Group Says Worldwide Vehicle Sales Increased 24 Percent In March


Chrysler Group LLC, the U.S. automaker operated by Fiat SpA, said global auto sales in March rose 24 percent from a year earlier while growth outside of North America slowed from February.

Global deliveries climbed to 164,092 vehicles last month, Auburn Hills, Michigan-based Chrysler said in an e-mail. Worldwide sales this year through March rose 18 percent to 393,879, below the 32 percent growth rate that Chief Executive Officer Sergio Marchionne has targeted for this year, reported Bloomberg.

Marchionne is pushing Chrysler to sell 2 million vehicles this year and turn its first annual net profit since emerging from bankruptcy reorganization in 2009. Chrysler expects growth outside of North America to accelerate as more of new or redesigned models arrive in Europe, Mike Manley, head of international operations, said in an interview yesterday.

“I’m looking for the rate of growth to pick up,” he said.

Sales outside of North America rose 1.6 percent from a year earlier to 13,996 in March, Ralph Kisiel, a Chrysler spokesman, said in an e-mail. That’s slower than the 8.6 percent gain in non-North American sales the company posted in February.

Kisiel declined to specify non-North American sales by regions as Chrysler did for January and February results.

Chrysler’s best-selling vehicle outside North America in March was the Jeep Wrangler with 2,256 deliveries, Ann Smith, a Chrysler spokeswoman, said in an e-mail.

First-quarter sales outside of Canada, Mexico and the U.S. rose 3.5 percent from a year earlier to 36,911.

“I’ve been very pleased with the way international sales have developed,” Manley said.

Sales in Canada rose 7.7 percent last month to 20,971 and 17 percent to 7,395 in Mexico, Kisiel said. The company previously reported U.S. sales rose 31 percent to 121,703.

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