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The Chrysler Group has repaid it outstanding debt worth $7.6 billion in loans to the U.S and Canadian governments. This ends nearly two years of public ownership of the third largest U.S automaker.
Chrysler made a payment of $5.9 billion to the U.S Treasury and $1.7 billion to Export Development Canada- finally ending loans that bailed Chrysler out of near bankruptcy in June 2009. It is impressive that the automaker managed to repay all debts six years ahead of schedule.
“Less than two years ago, we made a commitment to repay the U.S. and Canadian taxpayers in full and today we made good on that promise,” CEO Sergio Marchionne said in a statement. “The loans gave us a rare second chance to demonstrate what the people of this company can deliver and we owe a debt of gratitude to those whose intervention allowed Chrysler to re-establish itself as a strong and viable carmaker.”
The repayment became possible for Chrysler through its 16 new or refreshed models this year. The company reported a first quarter net profit for the first time since exiting bankruptcy under the control of Italy’s Fiat S.p.A
The automaker initially borrowed $5.1 billion from the U.S and $1.6 billion from Canada in June 2009 however the company racked up $1.8 billion in interest.
[Source: Automotive News]
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.