* Cheaper debt from Wall St to save company $300 mln/year
* Automaker had until 2017 to repay government debt
* Repayment could make Chrysler more attractive in an IPO
DETROIT, May 24 Chrysler Group LLC was set on
Tuesday to repay $7.5 billion in U.S. and Canadian government
loans from its 2009 federal bailout, a move that will allow the
U.S. automaker to distance itself from an unpopular bailout and
deepen its ties with Italian automaker Fiat SpA FIA.MI.
Under the original terms, Chrysler had until 2017 to repay
Sergio Marchionne, the chief executive of Fiat and
Chrysler, is scheduled to appear at a Chrysler assembly plant
in Sterling heights, Michigan, Tuesday afternoon to express
thank to the governments for their financial support. Also at
the event will be Ron Bloom, the Obama administration's point
man on auto restructuring, and General Holiefield, head of the
United Auto Workers union's Chrysler department.
Marchionne noted on Monday that Chrysler's repayment of its
bailout loans was even faster than that engineered by Lee
Iacocca, who led the U.S. automaker through a government
bailout in the late 1970s and ran the company through 1992.
Chrysler paid more than $1.2 billion in interest on its
debts in 2010. Marchionne's frustration with the terms of the
government loans seemed to bubble over earlier this year when
he denounced them as "shyster loans." [ID:nN05153253]
Chrysler is swapping out government debt with cheaper debt
from institutional investors. The refinancing will not mean it
has less debt on its books, but it will save the company more
than $300 million a year in interest expense, Marchionne said
Nor will the company have completely ended government
involvement. The U.S. Treasury will still own a small
percentage of the equity in Chrysler, which Fiat can buy over
Yet Chrysler's ability to pull off a deal at all is a sign
of Wall Street's renewed faith in the company, which was nearly
left for dead two years ago at the height of the financial
"When we did this deal back in 2009, we couldn't have
borrowed a buck from a 7-Eleven store -- the banking system was
shut," Marchionne said earlier this year.
The repaymant will put Chrysler on firmer financial ground
and draws it closer to Fiat, two things investors and bankers
have said would make Chrysler more attractive in an initial
public offering that could come this year or next.
A sharp drop in auto sales pushed the Auburn Hills,
Michigan-based company to the brink of collapse in 2009 before
its federal bailout.
U.S. Treasury officials were initially divided on saving
Chrysler, but ultimately decided to prop up the company to
preserve jobs. Chrysler emerged from bankruptcy nearly two
years ago under Fiat's management.
Marchionne was a central figure in laying the groundwork
for the Chrysler deal in 2009. He refused to have Fiat put up
any cash for Chrysler.
Instead, the U.S. Treasury devised a series of tests that
allowed Fiat to raise its stake. Over time, Fiat can increase
its stake to 76 percent, according to a recent regulatory
As a result of the loan repayments, Fiat's stake in
Chrysler will rise to 46 percent as of Tuesday. This puts Fiat
within striking distance of its 51 percent goal in 2011. Once
Chrysler develops a vehicle that gets 40 miles per gallon on a
Fiat platform -- a development expected in the fourth quarter
-- Fiat can go to 51 percent.
Marchionne can also bolster Fiat's earnings by moving
quickly to integrate its operations with Chrysler's, analysts
said. Chrysler generates "structurally stronger" profits than
Fiat, which relies heavily on Brazil, Cheuvreux analyst Bruno
Lapierre wrote in a note.
Bernstein Research analyst Max Warburton said there was
little obvious commonality between Fiat's production of small
cars in Italy and Poland and Chrysler's manufacturing of
pickups in Michigan and Mexico.
"But Marchionne seems determined to make this work, and is
pushing the companies together far faster than any previous
example of M&A," Warburton said in a May 19 research note.
Chrysler's lineup, which is heavily skewed toward pickup
trucks, minivans and SUVs, remains a concern for investors at a
time when pickup sales are faltering. In the first quarter,
Chrysler's U.S. market share was 9.1 percent, tracking below
the 10 percent goal for the year.
Additionally, meeting upcoming federal fuel economy
standards is expected to be a challenge for the company. Funds
from the Department of Energy would help the company meet those
"Chrysler is not yet fixed," Warburton said. "But it is
clearly in a much better place than we could have guessed 18
(Reporting by Ben Klayman in Detroit and Deepa Seetharaman in
Chattanooga, Tennessee; editing by John Wallace)