Chrysler Repays U.S., Canadian Governments as Fiat Increases Stake to 46 Percent
Chrysler Group LLC repaid $7.6 billion in U.S. and Canadian government loans, and Fiat SpA increased its stake in the automaker as it plans an initial public offering.
The U.S. government was repaid $5.9 billion, and Export Development Canada, which holds the debt for Canada and the Ontario provincial government, received $1.7 billion, Auburn Hills, Michigan-based Chrysler said today in a filing. Repaying the loans allowed Fiat to boost its stake in Chrysler to 46 percent from 30 percent, reported Bloomberg.
“In the eyes of most, Chrysler had been condemned to death,” Sergio Marchionne, chief executive of both automakers, said today in a speech at the company’s plant in Sterling Heights, Michigan. “Repayment of our government loans closes an important chapter in our history.”
Chrysler retired the loans by issuing new debt and using money Turin, Italy-based Fiat paid to increase its stake. The repayment comes almost two years after Chrysler emerged from U.S. government-backed bankruptcy reorganization that gave control of the automaker to Fiat.
“They’ve made remarkable strides,” David Cole, chairman emeritus at the Center for Automotive Research in Ann Arbor, Michigan, said in a telephone interview. “They’re in a position to be successful.”
Marchionne is preparing to sell Chrysler shares to the public later this year or in 2012, depending upon market conditions and cash needs.
Chrysler’s global sales rose 18 percent during the first quarter compared to last year, helped by increasing deliveries of the Jeep and Dodge brands. The automaker earlier this month reported a first-quarter net profit of $116 million, its first under Fiat.
Marchionne is pushing Chrysler to raise global sales 32 percent to 2 million vehicles this year and turn its first annual net profit since emerging from bankruptcy reorganization.
Marchionne has said he expects to get an additional 5 percent stake in Chrysler by the end of the year, giving Fiat 51 percent ownership.
Chrysler said it has more than $10 billion in liquidity following the repayment of the loans.
The U.S. government now owns 6.6 percent of Chrysler, the Canadian governments own 1.7 percent and a retiree health-care trust managed by the United Auto Workers union holds 45.7 percent, Eileen Wunderlich, a Chrysler spokeswoman, said in an e-mail. The Treasury said today it isn’t likely to recover its remaining $1.9 billion investment in Chrysler.
Ron Bloom, President Barack Obama’s special assistant for manufacturing policy, said the loans to Chrysler and General Motors Co. were a success because they saved jobs.
“Outsiders have concluded that had we not acted, 1 million jobs would have been lost,” Bloom said in a speech. “Since GM and Chrysler emerged from bankruptcy, the auto industry has added 115,000 jobs.”
The government will be “opportunistic” in selling its remaining stakes in GM and Chrysler, Bloom said in an interview.
“It doesn’t mean as soon as possible,” he said. “It also doesn’t mean being a long-term investor.”
Fiat has options to increase its Chrysler stake to more than 70 percent, Chrysler said this month in a filing with the U.S. Securities and Exchange Commission. Those options include the right to buy the U.S. Treasury’s remaining stake in the 12 months after it repays the government.
Fiat also has an option to acquire 40 percent of the original stake held by the UAW retiree health-care trust, Chrysler said. The option is exercisable from July 1, 2012, to Dec. 31, 2016, and in amounts of as much as 8 percent in any six-month period, according to the filing.
Fiat may be eager to increase its ownership in Chrysler before the U.S. automaker’s IPO, Max Warburton, a Sanford C. Bernstein & Co. analyst in London, wrote in a note to investors.
Marchionne is “acutely aware that acquiring additional equity in Chrysler once listed will prove to be more expensive than is currently the case,” he said.
Goldman Sachs Group Inc. advised Chrysler on the financing, and Evercore Partners Inc. advised the automaker’s finance committee, Chrysler said. Lazard Ltd. advised the Treasury on the transaction.
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