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Chrysler paying off $7.5B US, Canadian government loans

Chrysler will save $300 million in interest a year when it repays US$7.5 billion in and Canadian government loans today.


May 24, 2011
by CANADIAN PRESS

MACOMB TOWNSHIP, Mich.: Chrysler will save $300 million in interest a year when it repays US$7.5 billion in and Canadian government loans today.

Chrysler CEO Sergio Marchionne said Chrysler is eager to pay back its loans in part because of the governments’ high interest rates of around 12%, which cost the company $1.2 billion last year.

Under a new loan package announced last week, the company’s interest rates will fall to around 6%. That will boost the bottom line at Chrysler.

The company reported a $116 million profit – its first quarterly profit since its 2009 bankruptcy – in the first quarter.

Chrysler took $10.5 billion from the US government to survive two years ago. It has repaid some of the money and plans to give the US $5.9 billion.

It will also pay $1.6 billion to the governments of Canada and Ontario. Canada got a 2.2% stake in Chrysler and could get more cash in the public stock sale.

To pay back the loans, Chrysler is issuing $3.2 billion in bonds and taking out $4.3 billion in bank loans. It also will use a $1.3 billion investment from Italian automaker Fiat SpA. In exchange, Fiat will increase its ownership stake in Chrysler to 46%.

The company still owes the US government $2 billion. The government could get some of that back by selling its 8.6% stake in Chrysler.

Marchionne said he expects the government to get out of Chrysler as quickly as possible.
© 2011 The Canadian Press