* Chrysler likely to adjust terms before May
* $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 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
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
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
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.
All the investors declined to be named because they were not
authorized to speak with the media.
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
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
(Writing by Soyoung Kim; Editing by Dhara Ranasinghe)