April 23 (Bloomberg) -- Fiat SpA Chief Executive Officer Sergio Marchionne, with seven days left to forge a partnership with Chrysler LLC, may be forced to do what he opposed from the start: invest money to help save the U.S. automaker.

With Fiat amassing net debt of 6.6 billion euros ($8.6 billion) and its bonds cut to junk last month by Standard & Poor’s, Marchionne may have to back away from his pledge and put up cash to reach a deal with Chrysler by the U.S.-government imposed deadline of April 30, analysts say.

Fiat, Italy’s largest carmaker, reported its first quarterly loss since 2004 today even as it reiterated a target of earnings before interest, tax and some items of more than 1 billion euros this year. Sanford C. Bernstein Ltd. analysts said yesterday that Fiat may have to sell its “jewel assets” like the CNH Global NV agricultural and construction-equipment unit to fund the Chrysler partnership.

“I have some worries over the debt level in the short run,” said Roberto Brasca, head of equities at Anima SGR in Milan, which manages 7.5 billion euros including 5.4 million Fiat shares. “Marchionne will have to show that the operation is financially sustainable to have free hands to turn around Chrysler. Strategically this is the right move for Fiat.”

Fiat Cash Contribution

Chrysler, surviving with $4 billion in U.S. loans, must win concessions from banks and unions to reach the deal with Fiat. Its lenders asked Fiat to make a cash contribution to its proposed alliance as part of their proposal to the U.S. Treasury, people familiar with the negotiations said April 21. The lenders want Fiat to invest $1 billion in the U.S. automaker, the Washington Post reported yesterday.

Bernstein analysts led by London-based Max Warburton said in a note to clients that Fiat will need to raise money if it hooks up with Chrysler or takes a stake in General Motors Corp.’s Opel unit in Germany. Fiat is in talks about obtaining a majority holding in Opel, a move opposed by the GM division’s works council, Ilona Schmitz, an assistant to labor leader Klaus Franz, said today.

In a statement late yesterday, Fiat said no agreement has been reached in talks between Chrysler and its U.S. and Canadian unions, and that it’s “impossible to predict the timing and the final outcome.” The Italian carmaker reiterated today that it doesn’t plan to contribute cash to a Chrysler alliance. Marchionne also said the company won’t sell prized assets, and hasn’t had direct conversations on Opel.

Quarterly Loss

Fiat had a first-quarter net loss of 410 million euros, worse than the average estimate of five analysts surveyed by Bloomberg, who predicted a 349 million-euro deficit. The company had a profit of 405 million euros a year earlier. Net debt increased to 6.6 billion euros at the end of March, from 5.9 billion euros at the end of 2008.

Fiat has more than doubled on the Milan exchange from a record low on Feb. 25 as government incentives to buy more fuel- efficient cars started to boost sales in Europe. The shares fell 6 cents, or 0.8 percent, to 7.42 euros today, giving the carmaker a market value of 8.87 billion euros.

“I’m more cautious on Fiat after the shares rallied,” said Emanuele Vizzini, who helps manage about $1.2 billion at Investitori SGR in Milan and has sold most of his Fiat shares. “There’s always the chance of a capital increase. The major deal for Fiat has still to come.”

David Arnold, an analyst at Credit Suisse in London, said he recommends selling Fiat shares because of the risks of cash injection or a rights issue in case of a negotiated Chrysler Chapter 11 deal.

Chrysler Turnaround

“A massive expansion with the new auto businesses will surely require funding,” as Fiat will have to invest in the turnaround and restructuring of Auburn Hills, Michigan-based Chrysler’s plants, Warburton wrote in a note yesterday.

Not everyone agrees. Gabriele Parini, an analyst at UniCredit Markets & Investment Banking in Milan, said he doesn’t think Marchionne would put cash in Chrysler, “especially considering market concerns on Fiat debt.”

“My main concern is that Fiat won’t close the deal before the April 30 deadline,” he said.

A rights offer is “unavoidable” if Fiat is asked to invest in Chrysler or decides to acquire GM’s Opel unit, Mediobanca SpA analyst Massimo Vecchio wrote in an April 16 note. Marchionne has said he isn’t planning a stock sale.

Another Loan

With no cash injection for Chrysler, Fiat could avoid a capital increase by securing a second credit line after a 1 billion-euro loan from Intesa Sanpaolo SpA, UniCredit SpA and Credit Agricole SA in February, Mediobanca’s Vecchio said.

If the third-largest U.S. automaker is forced to declare bankruptcy, Fiat, along with rivals and industry players, may consider buying assets, Marchionne said April 15.

Chairman Luca Cordero di Montezemolo said earlier this week that Fiat is looking at alternatives to a Chrysler partnership and would review Chrysler talks during today’s board meeting.

Standard & Poor’s said March 31 it may cut its BB+ rating on Fiat further if there is “evidence that Fiat’s involvement with Chrysler translates into cash outflows.”

To contact the reporters on this story: Tommaso Ebhardt in Milan at tebhardt@bloomberg.net; Marco Bertacche in Milan at mbertacche@bloomberg.net.

Last Updated: April 23, 2009 12:36 EDT