Daimler to cut costs with 7 billion-euro refinancing

Daimler AG, the world’s second- biggest luxury carmaker, is cutting borrowing costs with a 7 billion-euro ($9.4 billion) credit line to refinance debt, three people familiar with the deal said.

Daimler is offering lenders an initial interest margin at 60 basis points more than benchmark lending rates for the five- year revolving credit, said the people, who declined to be identified because the information is private. That compares with a margin of 160 basis points for a credit line it agreed last year, according to data compiled by Bloomberg.

Growing car sales in the U.S. and China are helping the Stuttgart, Germany-based automaker negotiate better borrowing terms. The company in July raised its 2010 operating profit forecast to 6 billion euros from 4 billion euros.

“Lenders are slashing loan pricing on Daimler after a massive turnaround in the company’s balance sheet in the past 12 months,” said Frank Hussing, a Frankfurt-based credit analyst at Commerzbank AG. “It’s now a very solid credit well prepared for any potential downturn. We also see a good chance of a credit rating upgrade or more positive rating outlook.”

Credit Risk Falls

Daimler’s loan spread has fallen by almost two-thirds in the past year while the five-year credit-default swaps, which protect investors from losses on the company’s debt, declined to an average of 92 basis points this month from 128 basis points a year ago, according to data provider CMA. A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year.

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