Chrysler to repay government loans on May 24

DETROIT Wed May 18, 2011 8:09pm EDT

U.S Treasury Secretary Timothy Geithner (C) talks with Chrysler Jeep plant manager Pat Walsh (2nd L), UAW president Bob King (L) and Chrysler Chief Executive Sergio Marchionne (2nd R) during a visit to the Chrysler Jefferson North plant in Detroit, Michigan April 28, 2011. REUTERS/Rebecca Cook

U.S Treasury Secretary Timothy Geithner (C) talks with Chrysler Jeep plant manager Pat Walsh (2nd L), UAW president Bob King (L) and Chrysler Chief Executive Sergio Marchionne (2nd R) during a visit to the Chrysler Jefferson North plant in Detroit, Michigan April 28, 2011.

Credit: Reuters/Rebecca Cook

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DETROIT (Reuters) - Chrysler Group LLC plans to repay about $7.5 billion in U.S. and Canadian government loans on May 24 to strengthen the automaker's financial position, a person familiar with the matter said on Wednesday.

The loans are part of Chrysler's 2009 bankruptcy restructuring when a massive drop in auto sales pushed the company to the brink of collapse. The automaker is now operated by Fiat SpA.

Chrysler will use $3.5 billion in bonds, a $2.5 billion term loan and about $1.3 billion in cash from Fiat to repay the loans, people familiar with the matter have previously said.

Chrysler will detail the terms of its $3.5 billion bond offering on Thursday, the day the new debt is slated to be priced, the source said.

Chrysler declined to comment. The source declined to be named because the plans are currently private.

In late April, the company announced it would repay the government loans by the end of June.

Sergio Marchionne, who is chief executive of Chrysler and Fiat, and Chrysler Chief Financial Officer Richard Palmer went on a road show this month to court potential lenders.

Repaying the loans would mark a critical step for Chrysler as the automaker tries to distance itself from the controversial rescue by the Obama administration and rebuild consumer confidence in the brand.

Refinancing the government loans allows Chrysler to lower its interest payments, which totaled $1.2 billion last year. The move also allows Fiat to boost its stake in Chrysler to 46 percent from its current 30 percent.

The automaker initially aimed to borrow $3.5 billion in a term loan, which has a lower interest rate than the bonds.

But concerns over the company's finances and business outlook among other factors weakened demand for the term loan, people familiar with the matter previously said. As a result, the company cut the size of the loan to $2.5 billion and boosted its bond offering by $1 billion.

Under Fiat's leadership, Chrysler has overhauled its vehicle lineup and cut costs. So far the automaker has revamped 16 models and is developing new models that will move the company away from its traditionally truck-heavy lineup.

(Reporting by Deepa Seetharaman; Editing by Phil Berlowitz)

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