FCA officials negotiated the removal of covenants on two loans gaining access to a $2.8 billion credit revolver for product development.
Fiat Chrysler Automobiles confirmed that it has negotiated the end of certain conditions, or covenants, on two loans that will free cash from its U.S. subsidiary for use by the parent company.
Fiat completed the acquisition of Chrysler in 2014 but the combined company did not have control of Chrysler’s cash reserves, which were pledged as collateral for loan restrictions under a set of strict covenants as well as a cap on dividends.
“The amendments represent the final step toward allowing the free flow of capital among members of the FCA Group, and enabling access to the second 2.5 billion euros ($2.8 billion) tranche of Fiat Chrysler Automobiles’ 5 billion euros ($5.6 billion) revolving credit facility,” the company said in a news release.
FCA US has already prepaid roughly $2 billion on the amended loans, reducing their outstanding balance to about $2.8 billion, which is due during the next two years.
The company finished 2015 with $11.6 billion of cash on heels of nearly six years of rising sales. Eliminating the covenants will allow Fiat Chrysler to spend more on vehicle development in both North America and Europe where Marchionne is eager to extend the reach of both the Alfa Romeo and Maserati brands over the next two years.
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The Italian-American company’s current five-year operating plan also calls for eliminating the company’s operating debt on both sides of the Atlantic by the end of 2018.
Eliminating the covenants and freeing up the cash is bound to lead to grumbling among FCA’s blue-collar workers who are often suspicious of Marchionne’s free-wheeling approach to the business and his plans to move virtually all of the company’s passenger car business out of the United States.
The cap on dividends had already been breached in spirit by new profit-sharing formula FCA had negotiated with the United Auto Workers.
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Last month, FCA said that it will make profit sharing payments up to $4,000 to eligible UAW-represented employees as a result of the Company’s 2015 financial performance. Approximately 40,000 employees received profit-sharing payments valued at roughly $160 million following changes in the profit sharing formula negotiated last year by the United Auto Workers.
The payment represents a 45% increase from the $2,750 payment UAW-represented employees received last year.
As negotiated in the 2015 UAW-FCA US Collective Bargaining Agreement, future profit sharing payments will be based on the EBIT margin performance of the North American region reported in the FCA N.V. financial results beginning with 2016 calendar year performance.
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However, workers facing long layoffs, such as those at the company’s assembly plant in Sterling Heights, Michigan, which FCA plans to idle for two months, will receive smaller profit sharing payments.