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Chrysler repays debt to Uncle Sam

Bolstered: Italian company Fiat - whose 500 light-car is pictured left - has upped its stake in Chrysler, becoming the largest shareholder with 46 per cent.

Fiat moves another step closer to full Chrysler takeover as government loans repaid

25 May 2011

CHRYSLER Group has repaid loans and interest worth $7.6 billion ($A7.2b) to the United States and Canadian governments, paving the way for Fiat majority ownership from later this year and, eventually, a return to the stock exchange.

The repayments – paid in full six years early – were only made possible by a refinancing deal in which Chrysler borrowed $3 billion and arranged debt securities of $3.2 billion and a revolving credit facility of $1.3 billion.

The new finances will save the Chrysler Group an estimated $350 million ($A332m) a year in interest and make the company more palatable when it makes its initial public offering (IPO) on the New York Stock Exchange, perhaps within the next 12 months.

Under the latest deal, Fiat SpA raises its stake in Chrysler from 30 per cent to 46 per cent, making it the largest shareholder in the company, ahead of the United Auto Workers healthcare trust, whose slice drops from 59.2 per cent to 45.6 per cent.

As well, the US government share drops from 8.6 per cent to 6.6 per cent and the Canadian share is reduced from 2.2 per cent to 1.7 per cent.

Last Friday, three days after Fiat and Chrysler Group CEO Sergio Marchionne announced the repayments, the Italian auto giant said it had notified the US treasury of its intent to purchase the government’s 6.6 per cent share to boost its holding to 57 per cent by the end of 2011.

 center imageLeft: Chrysler Group CEO Sergio Marchionne announcing the repayment of government loans to his company.

Fiat expects to secure an extra five per cent stake in the fourth quarter, in return for putting into production a fuel-efficient car for Chrysler.

The governments rode to the rescue of Chrysler when it collapsed into chapter 11 bankruptcy in 2009, helping it to reorganise under new owner Fiat. The new-look company recently announced its first quarterly net profit of $US116 million ($A106m).

Fellow Detroit former bankrupt General Motors, which has also repaid all of its government loans on renewed profitability, is already relisted on the stock market.

Announcing the repayments on May 24, Mr Marchionne said that when Chrysler accepted the government money two years ago, the company had made a commitment to repay the US and Canadian taxpayers in full.

“Today we made good on that promise,” he said. “The loans gave us a rare second chance to demonstrate what the people of this company can deliver, and we owe a debt of gratitude to those whose intervention allowed Chrysler Group to re-establish itself as a strong and viable car-maker.

“Paying back the loans, along with the financial community’s investment in our refinancing packages, marks another step in the company returning as a competitive force in the global automotive industry.”

Wearing a red, white and blue ‘Paid’ lapel button that was handed to all Chrysler employees at last Tuesday’s announcement at a Chrysler plant near Detroit, Mr Marchionne thanked the workforce for the turnaround that had made the loan repayments possible.

“Everyone in the extended Chrysler Group family, from employees to union partners to dealers and suppliers, have worked tirelessly to deliver on our promises and to win back public trust in the company and our products,” he said.

“There is more work to be done as we remain focused on fulfilling the goals outlined in our 2010-2014 business plan.” Although he did not put a date on it, Mr Marchionne reconfirmed that Chrysler was planning an IPO, which will help pay out the remaining government ownership of the company. Analysts believe that might happen late this year or early 2012.

With Chrysler’s government loans repaid, the company now only has to put into production a car that can achieve 40 miles per gallon (5.88 litres per 100km) in the US to remove the last hurdle for Fiat to take more than 50 per cent share of the American auto-maker.

The loan repayments and introduction of the fuel-efficient car on a Fiat platform were requirements of the US government, laid down when it signed off on the deal to allow Fiat to take control of Chrysler’s rescue upon its exit from chapter 11.

A new Chrysler model built on Fiat’s small C-EV0 platform that underpins the Alfa Romeo Giulietta is expected to go into production in Illinois by the end of this year, achieving the fuel requirement and allowing Fiat to up its stake to 51 per cent and potentially more.

Since it formed the strategic alliance with Fiat, Chrysler has launched 16 all-new or refreshed vehicles and spent more than $3 billion in facility upgrades.

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