Chrysler to repay US gov’t bailouts

Chrysler
will take out bank loans and sell bonds to repay $7.5 billion in bailout money
from the U.S.
and Canadian governments, another sign that the company is recovering from its
near collapse in 2009.

Details
about how much Chrysler will borrow from banks and the size of the bond sale
are being worked out. Terms could be disclosed Monday.

Chrysler
plans to repay the government loans this quarter through a refinancing package.
The deal would allow Chrysler to return a big chunk of the money to the U.S. and Canada, which loaned the company
the money two years ago to help it survive bankruptcy. The refinancing also
allows Chrysler to save millions of dollars in interest payments, and is a
major step toward an initial public stock offering that could come late this
year or in early 2012.

Chrysler
has come a long way since slipping into bankruptcy protection two years ago. It
has since slashed costs and is selling more vehicles, such as the popular Jeep
Grand Cherokee SUV, big improvements for a company whose survival was once in
question.

Chrysler
has been trying for months to refinance the government loans, which cost the
company $1.2 billion in interest payments last year. The company’s CEO has said
the loans carry average interest rates of around 12 percent, far higher than it
can get on the open market.

The
loans have been a problem for Chrysler and the Obama administration, which
approved the bulk of the U.S.
bailout. The loans also have turned off some customers who are unhappy with the
government aid for Chrysler and its Detroit
rival, General Motors. For Obama, the refinancing would repay a big piece of
what the U.S.
loaned to Chrysler, eliminating at least part of a thorny political issue ahead
of the 2012 presidential campaign.

Chrysler
has been negotiating the refinancing with Morgan Stanley, Goldman Sachs Group
Inc., Citigroup Inc. and Bank of America Corp.

The
refinancing announcement comes the same day as U.S. Treasury Secretary Timothy
Geithner appears in Detroit.
He is scheduled to meet with Chrysler’s CEO, visit a Jeep factory and speak to
the local economic club.

Chrysler
took a total of $10.5 billion from the U.S. government to survive two
years ago. It already has made some payments, and the refinancing deal will
repay another $5.9 billion. Bottom line: Chrysler still owes the government
about $2 billion.

Some
of that could be repaid when the government sells its 8.6 percent ownership
stake in Chrysler in an IPO. Not all of the money will be recovered, though.

Chrysler
also took $1.6 billion from Canada
and Ontario
that will be repaid in the refinancing. Canada got a 2.2 percent stake in
Chrysler and could get more cash in the public stock sale.

Chrysler’s
biggest owner is a United Auto Workers health care trust fund, which holds a
59.2 percent stake. It plans to sell the stock to pay retiree health care bills
that were shifted to the trust by the company.

Once
the government loans are repaid, Fiat SpA, which runs Chrysler, will pay $1.3
billion to the U.S.
automaker. That money also will be used to help repay the government bailout.

In
exchange, Fiat will get an additional 16 percent stake in the company, raising
its stake to 46 percent. Fiat also can get another 5 percent after it begins
making a 40 mpg car in the U.S.
That would give it 51 percent ownership and full control of the company.

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