Fiat and Chrysler are consummating their "marriage" by mixing their money.
Like many marriages, the union isn’t complete until all the money is lumped into one account. Fiat Chrysler Automobiles (FCA) just finished that step when it borrowed $5 billion to refinance the debts of the two formerly separate companies.
The Chrysler Group said the previously announced offering of secured senior debt securities raised approximately $3 billion and a term loan facility was expected to raise approximately $2 billion.
Chrysler Group intends to use the net proceeds of the bond offering, together with borrowings under the senior secured term loan facilities, to repay all amounts outstanding under the senior unsecured note issued on June 10, 2009 to the UAW VEBA Trust with an original face amount of $4.6 billion. The trust had owned 41.5% of Chrysler Group stock before it was bought out by Fiat as part of the merger of the two companies.
The UAW VEBA received the Chrysler shares when the company was restricted during a bankruptcy that was supervised by the White House and the U.S. Treasury Department.
The refinancing transactions set in motion last month by the complete merge of Fiat and Chrysler are expected to close on February 7, 2014. Completion of these transactions is subject to customary conditions. Chrysler Group placed the Notes in a private placement under Rule 144A and Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). The Notes have not been registered under the Securities Act, meaning none were made available for public sale.
Sergio Marchionne, FCA CEO, told analysts recently that the debt created by the merger, while substantial, will not handicap the newly merged company.
Chrysler Group has priced an offering of $1.38 billion aggregate principal amount of 8% secured senior notes due 2019 or the 2019 Notes at an issue price of 108.25% of their aggregate principal amount plus accrued interest from December 15, 2013. Another offering of $1.38 billion of 8.25% Secured Senior Notes due 2021 at an issue price of 110.50% of their aggregate principal amount plus accrued interest from Dec. 15, 2013.
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The issue prices represent a yield to maturity of 6.165% per annum for the 2019 Notes and 6.433% per annum for the 2021 Notes.
The Notes will be issued as additional 8% Secured Senior Notes due 2019 and additional 8.25% Secured Senior Notes due 2021 under an indenture, dated May 24, 2011, pursuant to which Chrysler Group previously issued $1.5 billion aggregate principal amount of 8% Secured Senior Notes due 2019 and $1.7 billion aggregate principal amount of 8.25% Secured Senior Notes due 2021.
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The Notes of each series offered by Chrysler Group in this offering and the Chrysler Group, which is not considered investment grade, is borrowing the money at 2.75% over LIBOR, subject to a LIBOR floor of 0.75%; and a new $1.75 billion senior secured term loan facility, under which Chrysler Group will borrow at 2.50% over LIBOR, subject to a LIBOR floor of 0.75%.
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