Chrysler may restructure refinancing terms-sources

Sun May 15, 2011 10:26pm EDT

* Chrysler likely to adjust terms before May 18-sources

* $3.5 bln loans could be reduced, rates may rise-sources

* Chrysler could upsize bonds offering from $2.5 bln

By Michelle Sierra

NEW YORK, May 15 (Reuters) - Chrysler Group LLC, seeking to raise $6 billion in new debt to repay government loans, is expected to restructure its proposed refinancing package this week after investors showed hesitation over the loan portion of the transaction, people familiar with the matter said.

Chrysler executives, led by Chief Executive Sergio Marchionne, have been meeting with potential investors since early March to market a $3.5 billion term loan and $2.5 billion of second-lien bonds, with the target of completing the loan transaction by May 18.

But the U.S. automaker is likely to reduce the size of the loans from $3.5 billion after potential investors have been slow to commit as they weigh up the facility's large size and the company's business prospects, people familiar with the matter said.

Given the sluggish initial interest, the bank loan portion is likely to have to carry a higher interest rate than the currently proposed 5.5 percent to 5.75 percent, the sources said.

They added that the $2.5 billion bond portion of the transaction has attracted a strong response from potential investors and could be upsized - with a corresponding decrease to the loan.

The refinancing deal, which the U.S. automaker hopes to complete by May 18, would help Chrysler repay all of its more than $7 billion debt owed to the U.S. and Canadian governments stemming from its 2009 bailout by the end of June.

Chrysler and its larger U.S. rival General Motors Co took a federal bailout at the height of the financial crisis in 2009 as auto sales collapsed and consumer credit dried up.

While the U.S. auto industry started showing signs of a recovery in the past two years, Chrysler remained saddled with high-interest government loans, which bear interest rates from around 7 percent to 20 percent.

Chrysler's loan deal has struggled in part due to the troubled history of the company, as well as a pickup in supply of new leveraged loans that launched for syndication in recent days, potential investors said.

"In a market like this, trading sideways and with so much supply, people can afford to be choosy, especially when it comes down to a name where you have lost money before," one of the investors said.

A second investor looking at the deal earlier this week said that pricing on the transaction may not adequately compensate lenders for the risk involved in the loan.

A third investor who was shown the deal said that given the large size of the loan, lenders didn't feel pressed to rush in.

"Worst case, they can always pick it up in the secondary," he said, adding that Chrysler's car lineup consists mainly of larger cars that use more gasoline and that the company is relying on the Fiat brand, which is not widely known in the U.S. market.

All the investors declined to be named because they were not authorized to speak with the media.

CREDIT REVOLVER

The automaker launched on May 4 the term loan and a $1.5 billion revolving line of credit. Morgan Stanley , the lead agent bank on the loan deal, has been marketing the loan at 400 to 425 basis points over Libor with a 1.25 percent Libor floor, along with a discount of 99 to 99.5 cents on the dollar.

Other top lenders on the loan are Bank of America Merrill Lynch , Citigroup and Goldman Sachs . Bank of America is leading the bond deal while Citigroup is leading the revolving credit facility. Goldman Sachs is Chrysler's financial adviser.

Meanwhile, the $1.5 billion revolver is understood to be fully subscribed at the same pricing of the term loan despite some participants have raised their concerns about the absence of a Libor floor, the people familiar with the matter said.

The four lead banks for Chrysler's debt refinancing deal - Citigroup, Morgan Stanley, Bank of America and Goldman Sachs -- have committed $200 million each to the revolver.

Other lenders in the revolver include Barclays Capital , Deutsche Bank (DBKGn.DE), UBS AG , RBC and Banca IMI - the investment banking arm of IntesaSanPaolo -- which are also co-managers of the bond, the sources said. (Writing by Soyoung Kim; Editing by Dhara Ranasinghe)

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