Fiat access to Chrysler cash limited by dividend cap and debt covenants

Article by Anita Panait, on February 19, 2014

Fiat Chrysler Automobiles group disclosed that its access to Chrysler’s cash was limited by a cap on dividends from the US carmaker and its debt covenants. Fiat’s intention to fully acquire Chrysler was partly motivated by the fact that it could gain access to the US carmaker’s finances for it to spend on new models to overhaul its loss-making operations in Europe.

Analysts are worried about Fiat's increasing debts and its ability to finance a strategy that will allow it to focus on its upscale Maserati and Alfa Romeo brands and stop fully relying on low-margin volume models.

In response to a request for clarification from market regulator Consob, Fiat said in a statement that beyond the cap, dividend payments were also subject to the condition that Chrysler's liquidity surpasses a threshold of $3 billion. Fiat said that Chrysler's liquidity was $14.7 billion at the end of 2013.

The Italian carmaker remarked that intercompany financing was limited by debt covenants that require deals to get approval from a majority of "disinterested" members of the Chrysler board of directors. Fiat, however, said it had enough cash to fund its activities.

"On the basis of the group's available liquidity, credit lines in place and available for investment in industrial activities, in addition to the ability to access capital markets ... the group believes that its capital resources are more than adequate to meet the projected funding requirements," Fiat said in a statement.

Moody’s has recently downgraded Fiat’s rating, but the carmaker believes that the event would only prompt a marginal rise in commitment fees on EUR2.1 billion ($2.87 billion) of revolving credit line. [source: Reuters]

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