The Detroit News - The melding of Chrysler Group LLC and Fiat SpA into a single global company is the priority now that government loans have been repaid and Fiat looks to further increase its stake.
Chrysler on Tuesday repaid the final $7.6 billion it owed the U.S. and Canadian governments with money from Fiat as well as financing from the debt market. It was a show of confidence that the automaker has the wherewithal to thrive in the long term.
President Barack Obama will celebrate the loan repayment at a Toledo Jeep plant next week.
Sergio Marchionne, CEO of both Chrysler and Fiat, is focused on two ways to reduce the 45.7 percent stake held by the United Auto Workers' retiree health care trust, and the equity stakes still held by the governments. The U.S. Treasury holds a 6.6 percent share of Chrysler, and Canada has 1.7 percent. One way to reduce the stakes is for Fiat to increase its share — it can go as high as about 76 percent — and the other is through an initial public stock offering.
On Wednesday, Marchionne said the longer Fiat waits to buy from other shareholders, the more expensive it will become.
Fiat on Tuesday paid $1.27 billion to increase its Chrysler stake from 30 percent to 46 percent, and is expected to reach 51 percent in December under the terms of the 2009 agreement that governs the Chrysler-Fiat partnership.
Fiat can buy the rest of the U.S. Treasury's stake over the next 12 months and has the option to buy 40 percent of the UAW trust's original 63.5 percent stake from July 1, 2012, to Dec. 31, 2016.
A stock offering is more feasible with the government loans retired.
"It's a lot easier to explain an IPO when you don't owe money to the government," Marchionne said. "The government wants out. They've done their job and done it well."
Marchionne and UAW say they won't proceed with an IPO until the market looks ripe.
UAW Vice President General Holiefield said the union wants to sell its stake to secure long-term health care benefits for retirees. "The higher the margin, the better for us," he said.
How the equity market will embrace Chrysler is unknown, but the debt market was receptive when Chrysler sought to refinance its government debts.
Chrysler's refinancing was the largest new money capital raised in the debt market since the credit crisis in 2007, according to lead bank Goldman Sachs.
"For the company to be able to successfully raise $7.5 billion from conservatively oriented credit investors is a testament to the market believing in management, Sergio's leadership, the product suite and the ultimate success story that everyone hopes Chrysler becomes," said David Lischer, a managing director at Goldman Sachs.
About 12 banks contributed to the $1.3 billion line of credit.
In light of Chrysler's stormy financial history, "getting $1.3 billion is a good achievement for a company that size," Lischer said.
A further $6.2 billion in bonds was sold to insurance companies and pension and mutual funds.
Marchionne said it is highly unlikely he will seek funding of that magnitude again.
His focus is on consolidating Chrysler and Fiat, but, "I don't want to turn this into an international unmanageable octopus."
