Chrysler Group is reshuffling its debt via two loans raising $3 billion in net proceeds in one case, while another raised $2 billion. The Fiat-owned automaker used the money to pre-pay all amounts outstanding of what was $5 billion in debt incurred in 2009 as part of its bankruptcy case.
Before the bankruptcy, the UAW had previously – and reluctantly – accepted the notes to cover the health care costs of its retired members. This was a classic, many would say infamous, example of financial engineering under the Wall-Street-owned Bush Administration that removed union health care costs from the balance sheets of Chrysler, Ford and General Motors with a slight of hand trick.
The latest transactions were not cheap for struggling Fiat, which has now swallowed the Chrysler Group whole. The securities comprise $1.375 billion due in 2019 at an issue price of 108.25% of their amount, plus accrued interest from 15 December 2013, as well as $1.38 billion of 8.25% Secured Senior Notes due 2021 at an issue price of 110.5% of their principal amount, plus accrued interest from 15 December 2013. The issue prices represent a yield to maturity of 6.165% per year for the 2019 Notes and 6.433% for the 2021 Notes at a time when the Federal Reserve is printing money and Main Street taxpayers can only make 1% if they are lucky on their money market accounts.
Chrysler Group borrowed an additional $250 million of term loans maturing at 2.75% over LIBOR, subject to a LIBOR floor of 0.75%, as well as $1.75 billion of term loans maturing 31 December 2018, at 2.50% over LIBOR, subject to a LIBOR floor of 0.75%.
The refinancing transactions are expected to result in yearly interest expense savings during the next three years of approximately $200 million, including the elimination of a VEBA Trust Note discount amortization of $65 million annually. Chrysler Group expects to record a non-cash charge of approximately $500 million in connection with the repayment of the VEBA Trust Note.
“This transaction brings to a successful and earlier than anticipated conclusion the process that led the U.S. and Canadian governments, the UAW and the VEBA, together with Fiat, to take on the task of reestablishing Chrysler as a viable automotive enterprise,” claims CEO Sergio Marchionne.
“With the full early repayment of government loans in 2011, the acquisition from the VEBA of their Chrysler equity stake by Fiat in January of this year, and the full monetization of the VEBA note some nine years before the expiry of its term, Fiat and Chrysler together have satisfied all the monetary commitments that were made to Chrysler back in 2009,”says Marchionne.
