Fiat may secure financing for Chrysler stake buyout by May 2013

Article by Anita Panait, on April 25, 2013

Fiat SpA could secure financing by May 2013 as it bids to buy out the stake in Chrysler Group it still does not own, two sources privy to the matter told Reuters. The sources disclosed that Fiat is in advanced discussion with banks on financing to acquire the 41.5 percent of Chrysler controlled held by Voluntary Employee Beneficiary Association or VEBA, the retirees' healthcare trust of the United Auto Workers.

The financing talks are expected to conclude in May 2013. One of the sources told Reuters that Fiat is seeking to gain access to around EUR3 billion ($4 billion) in new financing and is looking to ink an agreement with VEBA by early July. Fiat chief executive Sergio Marchionne seeks to merge the Fiat and Chrysler to create the world's seventh-largest auto group.

The merger would also allow Fiat to gain access to Chrysler's cash to offset its string of losses in Europe and build economies of scale. A court in the United States is set for a hearing on Thursday that is expected to shed light on the price of Chrysler’s shares, which is the subject of a legal melee between Fiat and VEBA.

Marchionnne remarked earlier this month that Fiat may have to raise capital in the medium- to long-term following the Chrysler acquisition, adding that the Italian carmaker had enough cash to preclude a capital increase for the purchase. But later in the day, Marchionne told a group of reporters that the Italian carmaker may have to raise between EUR2.5 billion and EUR3 billion ($3.3 billion to $3.9 billion) in connection with the Chrysler stake buyout.

Although Fiat’s cash reserves amount to around EUR9 billion ($11.91 billion) as of December 31, 2012, in practice it would have to raise funds to merge with Chrysler to maintain the new group's credit rating. Analysts estimate VEBA's 41.5-percent stake in Chrysler to be between $3.5 billion and $4 billion.

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