Chrysler Group CEO Sergio Marchionne (r) escorts U.S. Treasury Secretary Timothy Geithner on a factory tour in Detroit last April.
Late yesterday Chrysler Group LLC announced that it reached agreements with private investors and banks that will let it pay back its outstanding government loans. To do so Chrysler has borrowed $3 billion in a term loan. Chrysler is also issuing debt securities – junk bonds in the amount of $3.2 billion that nominally pay 8% or 8.25%, much less than the double digit interest rates it is now paying governments. Chrysler also has a new $1.3 billion revolving credit agreement that for the moment is undrawn.
This means that the Fiat-controlled automaker has raised enough money from non-government sources to pay back U.S. and Canadian taxpayers the $7.5 billion in loans that were advanced to reorganize the weakest of the Detroit Three automakers in 2009 rather than let Chrysler Corporation slip into liquidation and oblivion.
It is primarily the interest on government loans – $1.23 billion – that prevented Chrysler from earning a profit during 2010 and resulted in an overall loss for the year of $652 million. So decreasing interest rates should improve earnings, a necessary precursor for the public offering of Chrysler stock later this year or early next.
Fiat also put $1.27 billion of cash into Chrysler and will now increase its stake to 46% from 30% under the terms of the bankruptcy bailout.
Nevertheless, taxpayers will still have ownership of Chrysler Group. When the necessary transactions close U.S. Treasury will hold 6.6%, down from 8.6%. Canadian governments will have 1.7% ownership, down from 2.2%. The UAW’s Retiree Medical Trust will hold 45.7%.
Bank of America Merrill Lynch, Citigroup, Goldman Sachs and Morgan Stanley handled and profited from the refinancing – themselves beneficiaries of government bailouts after the financial markets collapses in 2008.
Chrysler Group had its first quarterly net profit – $116 million in Q1 2011 – since Chrysler began operations in June 2009 after U.S. and Canadian taxpayers financed a bankruptcy and reorganization. Chrysler Group net revenues increased 35% to $13.1 billion compared to Q1 2010. The growth was primarily due to increased sales of new cars and trucks of plus 18% to 394,000 vehicles.
(See also Chrysler Group Reports U.S. April Sales Increased 22%, and Chrysler Group Credit Ratings Remain at Junk Level with Latest Standard & Poor’s and Moody’s Investor Assessments, and Chrysler Posts First Profit Since 2009 Taxpayer Bailout, and Chrysler to Repay Loans with New Debt. Fiat to Up Stake to 46%. Credit Ratings under Review for Possible Downgrade?)
