When do they put the Italian flag up?
Chrysler Group LLC announced today that it will repay the loans provided from the U.S. Department of the Treasury and the Canadian federal and Ontario governments by June.
Chrysler will finance the $7.5 billion needed to clear loans of $5.8 billion to the United States government and $1.7 billion to the Canadian federal and Ontario governments by issuing new debt in a private transaction to institutional investors. The U.S. government will still own 8% of Chrysler after the bonds are issued. Concurrently Fiat will increase its ownership in Chrysler by another 16% to 46% giving it absolute control over the weakest automaker among the Detroit Three.
The Fiat call option will be exercised at a cost $1,268 million, which critics claim is a steal in a controversy that goes all the way back to the original terms of the bailout where Fiat put in very little capital but was given credit for intellectual property involving its cars and engines and related technology. Defenders say the U.S. Treasury had no other options if it wanted to save the company.
Both Fiat’s and Chrysler’s performance have been scrutinized by analysts and credit rating firms since then. When it became clear that Marchionne was intent on getting out from servicing what he called high interest rate loans that were hurting Chrysler’s financial performance, questions were raised about the creditworthiness of Fiat itself, which posted Q1 revenues of a €9.2 billion and a net profit of €37 million. Fiat Group Automotive suffered 1.5% market share decline in Europe to a 7.1% share for the quarter. Parent Fiat had €489 million of debt on its books before today’s announcement.
“This is a fundamental step toward completion of the momentous integration of Fiat and Chrysler, initiated less than 2 years ago, that will result in the creation of a global automaker,” said Fiat CEO, Sergio Marchionne. “We have chosen to accelerate the pace to bring about, in the shortest possible time, the birth of a single group capable of fully leveraging the joint development of the respective international activities.”
The majority owner of Chrysler at 55% remains the health care trust for retired members of the United Auto Workers union.
Chrysler Group LLC, formed in 2009 from an alliance with Fiat as it emerged from bankruptcy, produces Chrysler, Jeep, Dodge, Ram, Mopar and Fiat vehicles and products.
