General News

U.S. will lend up to US$6 billion to Chrysler-Fiat

April 30, 2009

Washington, D.C. – The U.S. federal government has announced that it will lend up to US$6 billion to a new alliance of Chrysler and Fiat, following restructuring that will include Chrysler’s filing for bankruptcy protection. The Obama Administration said that the “unprecedented sacrifices” made by Chrysler, Fiat and their key stakeholders, along with the partnership, meets the framework set out by the government for Chrysler to achieve viability.

The alliance of the two automakers will create the sixth-largest global automaker.

The government said that, under the terms of the agreement, the alliance will retain Chrysler’s existing factory footprint, and continue to produce Chrysler cars in U.S. factories. Fiat will contribute billions of dollars in advanced technology and intellectual property, and offer Chrysler access to a global distribution network. The United Auto Workers Union (UAW) has made concessions on wages, benefits and retiree health care, as has the Canadian Auto Workers Union (CAW).

Other concessions include Chrysler’s largest secured creditors agreeing to exchange their portion of the company’s $6.9 billion secured claim for their pro-rata share of $2 billion in cash at closing; Daimler’s waiving its share of Chrysler’s $2 billion of second lien debt and paying $600 million to Chrysler’s pension funds; and Cerberus agreeing to waive its share of Chrysler’s $2 billion of second lien debt and forfeit its entire equity stake in Chrysler. Cerberus has also agreed to transfer its ownership of the Chrysler headquarters in Auburn Hills, Michigan to the new alliance.

The U.S. government will provide adequate working capital to help Chrysler through the restructuring period, and is prepared to provide approximately $3.3 billion in debtor-in-possession financing to support Chrysler through an expedited bankruptcy proceeding. Upon closing, it is prepared to lend approximately $4.7 billion to New Chrysler, with $2.1 billion due in 30 months, and the balance due half on the seventh anniversary and half on the eighth anniversary of the loan. Interest will be an appropriate combination of cash and payment-in-kind, plus an additional $288 million note, which is a fee for the loans. The loans will be secured by a first priority lien on all of Chrysler’s assets.

As part of the arrangement, Chrysler Financial will transition all of its current agreements with dealers to GMAC, which will provide dealer and customer financing, including once Chrysler has emerged from bankruptcy. The U.S. government will provide the capitalization needed by GMAC to support the Chrysler business.

The U.S. Treasury will also fund $280 million to a special program available to provide a backstop on the orderly payment of warranties for cars sold during the restructuring period.

In a statement, the government said that “while many stakeholders made sacrifices and worked constructively in this process, some did not. In particular, a group of investment firms and hedge funds failed to accept reasonable offers to settle on their debt. In order to effectuate this alliance without rewarding those who refused to sacrifice, the U.S. government will stand behind Chrysler’s efforts to use our bankruptcy code to clear away remaining obligations and emerge stronger and more competitive.”