Chrysler to repay $7.53 billion in loans before the end of June

Article by Christian A., on April 28, 2011

Chrysler Group is planning to repay $7.53 billion in loans from Canadian and U.S. governments this quarter as it is working towards a merger with its Italy-based partner Fiat S.p.A., as well as an initial public offering.

Repaying the debts will help elevate the company’s image after its bankruptcy proceedings two years ago, Chief Executive Officer Sergio Marchionne said. He is confident that once these loans are repaid, the perception of its brands will improve.

Even if the bailout damaged the image of the company’s brands, Marchionne informed reporters in Detroit last Thursday that the damage was not “lethal.”

He also said that it would be a great achievement if the company can repay the debts within two years from bankruptcy. In a statement, the company revealed that the proceeds from a private offering of a term loan and debt securities to institutional investors will be utilized to repay the debts to the governments.

The company will offer $2.5 billion in bond and a $3.5 billion term loan. It will also seek a $1.5 billion revolving credit line, according to insiders.

Interest as high as 20 percent on the Canadian borrowings and 14 percent on the U.S. debts prevented the company from achieving a net profit, Marchionne said. As for the merger, Fiat, which is also run by Marchionne, can only increase its Chrysler ownership to 51 percent if the automaker has repaid the loans.

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