Apr 27, 2011

Chrysler debt deal to launch next Wednesday: sources

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NEW YORK/DETROIT | Wed Apr 27, 2011 8:48pm EDT
(Reuters) - Chrysler Group LLC plans to launch a deal next Wednesday to repay more than $7 billion in government loans stemming from its 2009 bailout, four people familiar with the matter said.
Repaying the loans from the U.S. and Canadian governments would mark a critical step for Chrysler as the automaker tries to distance itself from the controversial rescue by the Obama administration and rebuild consumer confidence in the brand.
The refinancing, which would come about two years after Chrysler emerged from a U.S.-funded bankruptcy under the management of Fiat SpA (FIA.MI), would allow the company to put itself on firmer financial footing ahead of a potential initial public offering this year or next.
The deal also represents an important milestone for the Obama administration, which faced scrutiny over its highly unpopular decision to save the smallest and weakest of Detroit's three automakers from collapse.
The No. 3 U.S. automaker plans to raise $6 billion in term loans and bonds to repay the debt owed to the U.S. and Canadian governments, people familiar with the matter said.
The company will funnel $1.27 billion in cash from Fiat to pay down the remaining debt, these people said.
Fiat, which currently owns 30 percent of Chrysler, has said it plans to spend that amount to purchase an additional 16 percent stake in the U.S. automaker.
Chrysler also plans to raise a $1.5 billion revolving credit facility for general business purposes. It will remain undrawn and will not be used for paying down the government loans.
Morgan Stanley (MS.N) will lead the term loan deal, Bank of America (BAC.N) the bond deal and Citigroup (C.N) the credit line, people familiar with the matter said. Goldman Sachs (GS.N) is adviser on Chrysler's overall refinancing efforts.
In addition to the four lead banks, Chrysler aims to nominate another seven banks to fill the capital markets syndicate, the sources said.
Sergio Marchionne, chief executive of Chrysler and its Italian partner Fiat, has said he aims to have the high-cost government debt refinanced by June. That would clear the way for Fiat to obtain majority control of Chrysler -- one of Marchionne's overarching goals this year.
A financial integration of the two car companies could make Chrysler a more attractive story for potential stock investors when it eventually goes public, analysts and bankers have said.
GEITHNER TO VISIT DETROIT
Chrysler plans to announce its intention to refinance the debt Thursday -- the same day U.S. Treasury Secretary Tim Geithner is scheduled to make a trip to Detroit and meet with Marchionne, sources said.
There will be few details in Thursday's announcement, two of these people said. Geithner and Marchionne will tour Chrysler's Jefferson North assembly plant, where the company builds its highly touted Jeep Grand Cherokee.
Chrysler has also invited banks to start due diligence on the company and its credit on Thursday, ahead of the official launch of the refinancing package next week, the sources said.
Chrysler executives will court debt investors as part of the road show, which is expected to last through May, one of the people with direct knowledge of the matter said, adding that those investors will be predominantly in North America.
All sources declined to be named because the plan has yet to be announced. Chrysler declined to comment.
The collapse of auto sales and financing in 2008 brought Chrysler to the brink of liquidation before a bailout in 2009 that was directed by the Obama administration.
As part of that deal, Fiat was given management control of Chrysler and an initial 20 percent stake. Fiat was given a series of tests and an option that would allow it to boost its stake in Chrysler to 51 percent.
But Fiat can only get majority control if Chrysler repays the government loans in full.
The carrying value of Chrysler's debt to the U.S. government is $5.8 billion and to the Canadian government $1.3 billion, according to the company's fourth-quarter earnings release. The face value of these loans is $7.5 billion.
High interest rates on these loans have undercut Chrysler's efforts to return to profitability. Chrysler paid $1.22 billion in interest costs, or more than $3 million a day, last year.
Last week, Marchionne said he expects Fiat to buy a 16 percent stake in Chrysler in the second quarter, which should pave the way for Chrysler to clinch low-interest loans from the Department of Energy.
Chrysler has a pending application with the agency for about $3.5 billion, but approval for the loans has taken longer than expected.
The cash infusion from Fiat should provide "additional comfort" to the agency regarding Chrysler's financial stability, Marchionne said. He added that he expected approval for the loans "relatively quickly" after Fiat buys the stake.
(Reporting by Soyoung Kim, Michelle Sierra, Danielle Robinson and Joy Ferguson in New York, Deepa Seetharaman in Detroit and Philipp Halstrick in Frankfurt; Editing by Gary Hill, Gunna Dickson, Phil Berlowitz)

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