Exclusive: Chrysler debt refinance near, banks picked
NEW YORK/FRANKFURT/DETROIT |
(Reuters) - Chrysler Group LLC is close to launching a debt refinancing package to repay its U.S. and Canadian government loans and has selected four banks to lead the deal, people familiar with the matter said.
Goldman Sachs Group Inc (GS.N), Morgan Stanley (MS.N), Citigroup Inc (C.N) and Bank of America Corp (BAC.N) are in advanced discussions with Chrysler to finalize a deal that will replace all of its roughly $7 billion government loans with term loans and bonds, these people said on Thursday.
In addition, the banks will also arrange a revolving credit facility for the automaker's future liquidity purposes, these people said. The revolver will not be used for paying down government loans.
Repaying the loans stemming from its historic 2009 bailout by the Obama administration would pave the way for Fiat SpA (FIA.MI) to obtain majority control of Chrysler this year. This is one of Chief Executive Sergio Marchionne's overarching goals as he tries to integrate the two car companies.
Chrysler, in which Italy's Fiat owns a 30 percent stake, is expected to launch the debt offering after Chrysler reports its first-quarter earnings, likely in May, the people said.
Marchionne, the CEO of both Chrysler and Fiat, said this week that the company is aiming to refinance the government debt by June. Sources said the final details of the refinancing package hinge on Marchionne's approval.
"When the (debt) markets are strong, obviously you want to try to access them as quickly as possible and take advantage of the window," a person familiar with the matter said.
"The market is available in material size and clearly there's strong desire for Fiat to move quickly and step up its ownership stake (in Chrysler)," the source added.
Chrysler's initial public offering, earlier planned for the second half of this year, could be pushed into 2012 as Fiat first wants to secure majority control of the U.S. automaker, a possibility Marchionne suggested in late March.
But before Fiat can take control, Chrysler must repay its loans to the U.S. and Canadian governments in full.
'A GLOBAL ENTITY'
A financial integration of the two car companies could make Chrysler a more attractive story for potential stock investors when it eventually goes public, people familiar with the matter said.
"In its current form, public shareholders of Chrysler would be asked to make investment in Chrysler where Fiat is a minority investor," another person close to the matter said.
"If Fiat takes control of Chrysler, then what you're investing in is basically the combination of Fiat and Chrysler, which is a larger global entity."
Marchionne has described 2011 as a "year of execution" for Chrysler as it launches a refreshed lineup of cars and trucks and works more closely with Fiat in ways big and small.
Chrysler plans to launch a Dodge car that is a wider version of the Alfa Romeo Giulietta developed by Fiat. This week, Chrysler's parts and services division Mopar said it would begin selling Fiat-made parts.
Chrysler has rolled out 16 new and revamped models and built some renewed buzz for its flagship brand with a Super Bowl ad and the tagline "Imported from Detroit."
DEVIL IS IN THE DETAILS
Chrysler has so far been unprofitable, in large part because of the high interest rates on its debt to the U.S. Treasury and the Canadian government. The automaker paid $1.23 billion in interest in 2010.
As part of the bailout agreed to with Washington, Fiat was given management control and a 20 percent stake in Chrysler.
Under terms of the agreement, Fiat's stake could increase to 35 percent in increments if Chrysler meets three tests -- 5 percent for each test -- designed to make it stronger.
So far Chrysler has met two of those targets -- boosting its stake to 30 percent -- and plans to meet the last one in the fourth quarter.
Fiat also has an additional 16 percent option that it can only exercise if its loans to the U.S. and Canadian government fall below $4 billion.
Once Chrysler meets all three tests and it repays the roughly $7 billion in loans, Fiat is free to boost its share to 51 percent.
Representatives for Chrysler and the four banks declined to comment. The sources asked not to be identified because the refinancing plans are confidential.
(Reporting by Soyoung Kim in New York, Philipp Halstrick in Frankfurt and Deepa Seetharaman in Detroit; Editing by Andre Grenon and Phil Berlowitz)
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