Fiat-Chrysler CEO Sergio Marchionne continues to push off an IPO for the U.S. automaker.
The Chrysler Group has found another way to bolster its bottom line.
The automaker has taken advantage of favorable market conditions to reduce the interest rate on the $2.9 billion term loan that helped it pay off the financial obligations to the U.S. and Canadian governments run up during its post-bankruptcy bailout.
“Under current market conditions, this action reduces the annual interest cost for the term loan by approximately $22 million. The term loan maintains a maturity date of May 24, 2017,” Chrysler said in a statement.
The loan was negotiated in 2011 and used to repay the federal and Canadian governments which had loaned Chrysler a total of $7.6 billion after it emerged from bankruptcy in 2009. Chrysler paid off the $5.9 billion loan from the U.S. Treasury and the $1.7 billion loan from Canadian government six years ahead of schedule to get out from under what Fiat/Chrysler CEO Sergio Marchionne described as onerous terms.
The maker was able to line up financing from a consortium of investment banks that includes a term loan of $3 billion, debt securities totaling $3.2 billion and a revolving credit facility of $1.3 billion. Eliminating the debt to the U.S. and Canadian government saved Chrysler an estimated $350 million per year in interest.
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The loan repayment was also helped by funds from Fiat, which paid the government $1.3 billion to increase the size of its stake in its American partner. It currently holds a 58.5% stake in Chrysler but would eventually like to completely acquire the U.S. maker.
To that end, Fiat has resumed negotiations with the United Auto Workers Voluntary Employee Benefit Association or VEBA. The VEBA is the other major shareholders and has been locked in a dispute with Fiat over the value of its own holdings. With a court in Delaware showing no rush to resolve the matter, the VEBA has demanded Chrysler schedule an initial public offering of stock. An IPO would clear the way for the VEBA, which is a trust responsible for paying the medical expenses of former Chrysler employees, to turn its stock into cash.
Back in September, Chrysler filed a registration statement with the U.S. Securities and Exchange Commission that could lead to an IPO. The common stock in the offering would be sold by the VEBA, which has demanded the registration under a shareholders’ agreement negotiated as part of the Chrysler bailout.
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In late 2009, Marchionne himself indicated an interest in staging a Chrysler IPO, but the CEO has since made it clear that is not an option he favors, as Fiat wants to control all of Chrysler’s stock, which would allow for the complete integration of the two companies. He has postponed the IPO several times in an effort to reach an agreement with the benefit trust.
So far, however, Marchionne has been unwilling to agree to the price demanded by the VEBA’s negotiators. Fiat is reportedly offering about $4.2 billion, while the trust wants more than $5 million for its 41.5% stake in Chrysler.
Meanwhile, Chrysler continues to roll up impressive financial numbers. For the third quarter, it reported net income of $464 million, an increase of 22% from $381 million during the same quarter a year earlier. It marked the ninth consecutive quarter of positive net income for Chrysler. Net income for the first nine months of 2013 totaled more than $1.1 billion Chrysler’s financial results for the full year are due in January.