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Chrysler Group’s Financial Woes at an End?

The Chrysler Group’s financial crisis may be over following the announcement that they have repaid $5.9 billion (€4.3 billion, £3.7 billion) in government loans six years ahead of schedule.

The repayments to the U.S Treasury and Export Development Canada (EDC) were made following the completion of new refinancing transactions, and are in addition to interest payments of $1.8 billion (€1.3 billion, £1.1 billion) that have been made.

“Less than two years ago, we made a commitment to repay the U.S. and Canadian taxpayers in full and we made good on that promise,” said Sergio Marchionne, Chief Executive Officer, Chrysler Group LLC. “The loans gave us a rare second chance to demonstrate what the people of this Company can deliver and we owe a debt of gratitude to those whose intervention allowed Chrysler Group to re-establish itself as a strong and viable car maker.

“Paying back the loans, along with the financial community’s investment in our refinancing packages, marks another step in the Company returning as a competitive force in the global automotive industry.”

Chrysler Group LLC, formed in 2009 from a global strategic alliance with Fiat S.p.A., produces Chrysler, Jeep, Dodge, Ram, Mopar and Fiat vehicles and products. Their return to profitability is a surprise to many industry commentators who once thought that the company would never return to the dominant position that it had once enjoyed.  The Fiat Group alliance has led to 16 all-new or significantly refreshed vehicles being released helping them to achieve double-digit sales increases worldwide. They have also invested more than $3 billion (€2.2 billion, £1.9 billion) in facility upgrades and employed 6,000 new workers.

Chrysler Group confirmed that they had completed new financing transactions comprising a term loan totalling $3.0 billion (€2.2 billion, £1.8 billion) debt securities totalling $3.2 billion (€2.3 billion, £2 billion) and a revolving credit facility of $1.3 billion (£95 million, £81 million), saving them an estimated $350 million (€257 million, £219 million) a year in interest.

The Company used the net proceeds from the term loan and bonds, together with $1.3 billion (£95 million, £81 million) from an equity call option exercised by Fiat to increase their share of the company by 16 percent, to repay the government loans. The revolving credit facility remains undrawn.

The money was borrowed from U.S. Treasury and EDC. EDC is the holding company through which the Canadian Federal and Ontario provincial governments extended loans to Chrysler Group in June 2009. The Chrysler Group say that they continue to have more than $10 billion (€7.3 billion, £6.2 billion) in liquidity after the refinancing and loan pay-offs, which includes the undrawn revolving credit facility.

The position, whilst positive, isn’t clear-cut.  The American government still own a 6.6 percent stake in the firm, and the statement made on Tuesday 24th May 2011 doesn’t include the $1.9 billion (€1.4 billion, £1.2 billion) loan that was wiped out when Chrysler declared bankruptcy in 2009, or the $1.5 billion (€2.6 billion, £2.2 billion) loaned to Chrysler’s suppliers.  Chrysler has also applied for a $3.5 billion (€1.1 billion, £94 million) loan from the US Government to help them develop more energy-efficient vehicles.

Marchionne remains upbeat, but cautious: “Everyone in the extended Chrysler Group family, from employees to union partners to dealers and suppliers, have worked tirelessly to deliver on our promises and to win back public trust in the Company and our products. There is more work to be done as we remain focused on fulfilling the goals outlined in our 2010-2014 business plan.”

About Carlton Boyce

Carlton Boyce
Carlton Boyce is a freelance journalist and photographer covering all aspects of the motoring industry.

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