In brief: Chrysler is looking at strategic loan ideas to transfer debt from government to private hands.
Chrysler still owes about $7.5 billion in loans to the U.S. and Canadian governments. For now, most of Chrysler's board of directors is controlled by the U.S. Treasury, which holds four seats. The Canadian government holds another seat and the United Auto Workers, who own a majority stake in the company, hold another seat. Fiat holds three seats and has the smallest of non-governmental stakes.
This will all change if the plans Chrysler has laid out happen. Under the restructuring agreement, Fiat can purchase another 16% of the company, putting its ownership at 41% total. To do this, they have to pay off the government-backed loans from the U.S. and Canada.
Their plan is to refinance the loans privately into lower-interest debt securities and term loans to investors in the private sector. These monies will then be used to pay back the governments involved. Once those are paid back, Fiat will put in their $1.27 billion to purchase the 16% heavier stake. Those monies will then be used to pay off the short-term loans from investors as well as other secured debt the company holds.
This would likely give a big boost to the starting shares for Chrysler's upcoming initial public offering (IPO), which the company may do this year or early next.
And so ...
If the plans go through, then Chrysler would beat GM in paying back all government-based loans. GM paid back initial bailout loans with more government-backed loans.
Photo credits: Edmunds