Federal bailout money helped Chrysler survive bankruptcy, but now CEO Sergio Marchionne will use Chapter 11 to avoid repaying $4 billion of $11 billion the automaker owes taxpayers.
Sergio Marchionne has confirmed that Chrysler Group LLC will not repay all the money it got from the U.S. Treasury.
The $4 billion was granted to Chrysler in early January by the Treasury before filed for Chapter 11 protection. The money was used by Chrysler’s previous owner, Ceberus Capital Management, to keep the company alive over the winter, as the automaker teetered towards bankruptcy.
The January debt was left behind in bankruptcy with the so-called old Carco, Marchionne said. “It’s a consequence of the bankruptcy proceedings,” Marchionne said.
That entity, which has absorbed the unwanted assets and debts of the old Chrysler filed a reorganization plan this week that gives nothing back to the U.S. for its $4-billion loan under the Troubled Asset Relief Program, or TARP. The old Chrysler was left in bankruptcy after Fiat picked up the most viable parts of the company in a court-approved auction last summer.
The assets include a long list of real estate parcels, empty buildings and environmentally damaged property that will be sold off in an attempt to satisfy unsecured creditors, including the U.S. Treasury.
The U.S. Treasury grant in January was instrumental in keeping the company afloat and intact during the winter and spring, Chrysler officials said privately.
Chrysler will assume $500 million of the January loan, according to Richard Palmer, Chrysler’s chief financial officer.
Meanwhile, a claim by a group of secured creditors, who charged that the U.S. Treasury unfairly gave preference to certain other creditors, notably the United Auto Workers, was dismissed by the U.S. Supreme Court. The court’s refusal to hear the lawsuit effectively ended a key part of the litigation around the bankruptcy.
However, Marchionne said the new Fiat-connected Chrysler will repay the $7 billion that the Treasury provided to the company after it emerged from bankruptcy in June.
The repayments by the new Chrysler will start in 2011 and be completed by 2014, he said.
Marchionne also indicated he didn’t plan to accelerate the re-payments like General Motors has proposed doing – GM Chairman Ed Whitacre this week promising to pay back the company’s roughly $6 billion in TARP debt by next June.
“It’s an entirely different situation,” Marchionne said, contending that, “The capital structures of the two companies are completely different.”
The US Treasury now owns 61 percent of GM, which is expected to sell off the stock through an initial public offering of shares. There has been pressure on GM to stage the IPO by as early as the second half of 2010. But Whitacre cautioned that, “I don’t have a specific time for the IPO.” He said there are a number of steps that must first be taken, adding that, “I’m a flexible guy and this is a flexible Board.”
Marchionne noted that Chrysler’s retiree health-care trust, known as a VEBA, is now the company’s largest shareholder and also is eager to see its holdings “monetized.” Chrysler, however, wants to make sure that VEBA gets the maximum value for its shares.