Chrysler set to repay bailout loans

By Chris Isidore, senior writerApril 28, 2011: 12:16 PM ET

NEW YORK (CNNMoney) — Chrysler Group said Thursday it plans to repay the high-interest loans it owes the U.S. and Canadian governments by borrowing money from the private sector.

The automaker said it will repay the $5.8 billion it owes in loans to U.S. taxpayers, and the $1.7 billion it owes to the Canadians at some point this quarter, once it closes on a new term loan facility and newly issued debt securities to be sold to institutional investors.

The terms of the new loans are not available, but Chrysler is now paying between 7% and 14% on the U.S. loans, and as high as 20% on some of its Canadian loans, so it could see some significant savings by turning to the private sector for alternative financing.

In February Sergio Marchionne, the CEO of both Chrysler and Fiat, the Italian automaker that owns a controlling stake in Chrysler, said the company needed to repay “shyster loans” to the government.

He quickly apologized for the remark, admitting that, at the time Chrysler got the government help in 2009, the high rates were appropriate given the risks and lack of alternative lenders.

Chrysler is due to report first quarter results Monday. It could mark the company’s first profitable quarter since breaking off from DaimlerChrysler back in 2006.

Repayment of the loans will still leave U.S. taxpayers about $3.5 billion short. Treasury might recoup some of that money when the automaker holds its initial public offering either later this year or early next year. Treasury currently owns 8.6% of Chrysler’s privately-held shares, while the Canadians owe 2.2%.

But recouping all of that money in the IPO is unlikely, since it would require the company to be worth more than $40 billion in order to have the stake be worth $3.5 billion.

For comparison, General Motors (GM), the nation’s largest automaker, has a market value of $49.7 billion, while more profitable Ford Motor (F, Fortune 500) has a market value of $57.6 billion. Both are significantly larger than Chrysler.

Thursday’s announcement on the loan repayment came as U.S. Treasury Secretary Tim Geithner, who is in Detroit for a speech on the economy, was set to tour a Chrysler plant. 

First Published: April 28, 2011: 12:10 PM ET