Chrysler Group LLC, which is considering refinancing loans from the U.S. and Canadian governments, is looking “at a variety of capital sources,” Chief Executive Officer Sergio Marchionne said today.
Marchionne, who also is CEO of Fiat SpA, has said interest on the $7.4 billion U.S. and Canadian government loans has kept Chrysler from earning a profit this year.
“We’re on good track to eventually get rid of this problem,” Marchionne told reporters today in Rome.
Chrysler has contacted banks about borrowing money before a possible initial public offering next year, two people familiar with the effort said last month. Marchionne previously said Chrysler’s board is looking to refinance the government loans as it considers the company’s proper debt level.
The Auburn Hills, Michigan-based automaker has said its effective interest rate on money borrowed from the U.S. government is as high as 14 percent and as high as 20 percent on the Canadian loans.
“We’re working on solutions that are designed to provide stability in the capital structure of Chrysler in the medium to long term,” Marchionne said today. “It’s a relatively complex discussion.”
Chrysler could lower its interest payments by $400 million by refinancing the debt, Stuart Pearson, an analyst with Morgan Stanley, said in a note to investors on Nov. 3.
“We believe refinancing in the capital markets may be possible for Chrysler by mid-2011, by which time it should have a 12-month track record of profitability and cash generation,” Pearson wrote.
Chrysler is scheduled to release third-quarter results on Nov. 8. The company’s second-quarter net loss narrowed to $172 million from $197 million in the first three months of the year. Chrysler ended the second quarter with $7.84 billion in cash.
The U.S. automaker needs to keep a minimum cash balance of about $3 billion for working capital, Moody’s Investors Service said in a November 2009 note.