Chrysler To Repay Government Loans This Summer Thanks to Creative Debt Refinancing

Chrysler To Repay Government Loans This Summer Thanks to Creative Debt Refinancing

Chrysler Group LLC has just announced that it plans to fully repay the loans it took from the U.S. and Canadian governments by the middle of this year.

In a statement from the auto maker, it says “Chrysler Group intends to complete the repayment during the second quarter of 2011 from proceeds of a new term loan facility and newly issued debt securities to be offered and sold to institutional investors in a private offering exempt from registration under the U.S. Securities Act of 1933.”

Chrysler wants to repay the government loans as quickly as possible due to their high interest rates, which stand at 14% for the U.S. loan and as high as 20% on loan from the Canadian Government.

Chrysler and Fiat CEO Sergio Marchionne said that these loans would cost $500-million in just interest, which would severely affect the company’s ability to make a profit. In order to pay off these loans, Fiat is looking to buy an additional 16% stake in Chrysler at a reported $1.27-billion. Fiat currently owns 30% of Chrysler Group LLC. Chrysler will also look at private investors to see if it can essentially get a better interest rate compared to the government loans, which currently sit at $7.53 billion.

Fiat can only purchase the extra stake in Chrysler once this debt is wiped clean. This debt-refinancing deal is the only hope for the struggling car maker to start earning a profit in the near future.