Chrysler’s loan payoffs could save it $300 million in annual interest payments

Article by Christian Andrei, on May 24, 2011

Chrysler Group LLC’s chief executive officer Sergio Marchionne disclosed on Tuesday that the company is ready to repay its loans from the governments of Canada and the United States, allowing it to save at least $300 million in annual interest payments.

The endeavor will also allow Italy-based Fiat S.p.A. to increase its share in Chrysler from 30 percent to 46 “as soon as the money transfers,” according to Marchionne who is also chief executive at Fiat.

He reiterated that Fiat intends to increase its stake in Chrysler further by the end of this year, stating that "over time" the company could boost its share to as much as 76 percent in part by obtaining a portion of VEBA, which is the share held by the United Auto Workers union.

The move will place the U.S.-based Chrysler on firmer financial ground as well as bring it closer to Fiat, which are two scenarios that will attract bankers and investors in an initial public offering, which could come soon.

Last year, Chrysler raised $7.5 billion in new loans, a greater part of which, along with $1.3 billion in cash from Fiat, will be used to pay off around $1.6 billion in loan debt to the Canadian government and $5.9 billion in loans and interest to the U.S. government.

According to Marchionne, the refinancing was a sign that the Wall Street is confident in Chrysler around two years after it survived its U.S.-funded bankruptcy and took a federal bailout.

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