* Fiat and Chrysler loan refinancings move forward
* Prepares ground for Fiat to buy rest of Chrysler
* Both companies to cut borrowing costs
By Tessa Walsh
LONDON, June 4 Fiat has launched the
first part of a three-stage multi-billion euro financing
package, seeking to refinance loans taken out by Fiat and
Chrysler before the Italian group's looming purchase of the rest
of the U.S. carmaker, bankers said.
Fiat and Chrysler's loans are expected to be refinanced
before the summer to take advantage of strong loan market
conditions to cut borrowing costs and build in the flexibility
to allow a potential acquisition to go ahead, the sources said.
Fiat owns 58.5 percent of Chrysler and is trying to buy the
remaining 41.5 percent that it does not already own and merge
the two manufacturers into the world's seventh-largest auto
group by sales.
The potential M&A financing is on a longer timeframe and is
anticipated after the summer break, several bankers said.
A 1.95 billion euro ($2.6 billion) refinancing for Fiat has
been launched to nine relationship banks, which have been asked
to commit by mid-June, a senior banker said.
Fiat was not immediately available for comment.
Fiat is expected to be able to make a small reduction in
pricing of 175 basis points (bps) over LIBOR on the original
loan in October 2011, one banker said.
Chrysler Group LLC is also talking to banks about
refinancing a $3 billion, six-year syndicated term loan that it
took out in May 2011, a U.S. banker said. The loan was part of a
bigger deal that repaid $7.1 billion of loans from the U.S.
The penalty that Chrysler has to pay to refinance its loan
early falls to 1 percent in June and the company is expected to
launch the refinancing shortly afterwards in mid to late June,
two bankers said.
"Barring a catastrophe in the market, I'm sure Chrysler will
refinance," said a loan investor.
Chrysler's improving fortunes mean that the company could
cut its borrowing cost significantly to around 250 bps over
LIBOR, bankers said. Chrysler is currently paying 475 bps with a
1.25 percent Libor floor.
"There is no reason that Chrysler should be paying 6 percent
on a term loan with the pricing available in the market right
now," another U.S. banker said.
Bankers said Fiat is focused on the two loan refinancings
and is downplaying financing talks on a potential M&A deal.
"The M&A situation will not materialise very soon, it is
more likely after the two refinancings and after the summer," a
loan syndicate head said.
Fiat has to resolve a price dispute with U.S. healthcare
trust VEBA which owns 16.4 percent of Chrysler before proceeding
with a potential bid.