DETROIT — Chrysler will take out bank loans and sell bonds to 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 in 2009.
Details about how much Chrysler will borrow from banks and the size of the bond sale are being worked out. Terms could be disclosed Monday.
Chrysler plans to repay the government loans this quarter through a refinancing package. The deal would allow Chrysler to return a big chunk of the money to the U.S. and Canada, which loaned the company the money two years ago to help it survive bankruptcy. The refinancing also allows Chrysler to save millions of dollars in interest payments, and is a major step toward an initial public stock offering that could come late this year or in early 2012.
Chrysler has come a long way since slipping into bankruptcy protection two years ago. It has since slashed costs and is selling more vehicles, such as the popular Jeep Grand Cherokee SUV, big improvements for a company whose survival was once in question.
Chrysler has been trying for months to refinance the government loans, which cost the company $1.2 billion in interest payments last year. The company’s CEO has said the loans carry average interest rates of around 12 per cent, far higher than it can get on the open market.
The loans have been a problem for Chrysler and the Obama administration, which approved the bulk of the U.S. bailout. The loans also have turned off some customers who are unhappy with the government aid for Chrysler and its Detroit rival, General Motors. 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.
Chrysler has been negotiating the refinancing with Morgan Stanley, Goldman Sachs Group Inc., Citigroup Inc. and Bank of America Corp.
The refinancing announcement comes the same day as U.S. Treasury Secretary Timothy Geithner appears in Detroit. He is scheduled to meet with Chrysler’s CEO, visit a Jeep factory and speak to the local economic club.
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. Bottom line: Chrysler still owes the government about $2 billion.
Some of that could be repaid when the government sells its 8.6 per cent ownership stake in Chrysler in an IPO. Not all of the money will be recovered, though.
Chrysler also took $1.6 billion from Canada and Ontario that will be repaid in the refinancing. Canada got a 2.2 per cent 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 per cent stake. It plans to sell the stock to pay retiree health care bills that were shifted to the trust by the company.
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 per cent stake in the company, raising its stake to 46 per cent. Fiat also can get another 5 per cent after it begins making a 40 mpg car in the U.S. That would give it 51 per cent ownership and full control of the company.