Sergio Marchionne, chief executive officer of Fiat SpA (F) and Chrysler Group LLC, is closing in on refinancing deals for both automakers ahead of a plan to merge the two companies, people familiar with the matter said.
Marchionne is set to sign an agreement with nine banks this month to refinance 1.95 billion euros ($2.6 billion) in Fiat credit, said two people familiar with the matter, who asked not to be identified because the talks are private. The CEO is also seeking to reduce the rate on a $2.95 billion term loan at Chrysler, another person said this week.
Fiat, Italy’s biggest manufacturer has accumulated a 58.5 percent holding in Chrysler since 2009 and plans to buy the rest as it seeks a global presence to compete with General Motors Co. (GM:US) and Volkswagen AG. (VOW) In total, the Italian manufacturer is in talks with banks for as much as $10 billion in funding for the deal and for refinancing the two companies’ debt, people familiar with the matter said last month.
“We deem the news positive as the acquisition of Chrysler minorities may materialize soon,” said Gabriele Gambarova, an analyst at Banca Akros in Milan. “The reshaping of Chrysler debt is important because current conditions prevent Fiat from having access to Chrysler cash.”
Fiat gained as much as 8 cents, or 1.4 percent, to 5.70 euros and was little changed as of 10:17 a.m. in Milan trading. The shares have surged 48 percent this year, valuing the Turin, Italy-based company at 7 billion euros.
The two refinancing agreements may be signed as soon as June 21, the people said. The pool of banks working on the Fiat loan include Barclays Plc (BARC), Citigroup Inc., UniCredit SpA (UCG) and Mediobanca SpA. (MB) A Fiat representative said the automaker doesn’t comment on its financing plans.
Marchionne is also looking to raise funds to help pay for the purchase of the 41.5 percent Chrysler stake held by the United Auto Workers’ retiree health-care trust.
The Italian carmaker may pay $4.5 billion to buy the health-care trust’s holding, UBS said this week. That’s $1 billion more than the bank’s previous estimate made in April.
Fiat could pay for the acquisition in part with dividends from Chrysler after the American carmaker refinances its debt, Moody’s Investors Service Inc. said in a report yesterday. Chrysler is also likely to amend a $1.3 billion revolving credit facility, according to Moody’s.
Marchionne may create a new company in the U.S., merge Fiat and Chrysler into it and issue shares in the combined entity, a person familiar with the matter said last month. Exor SpA (EXO), the Agnelli family holding company which controls Fiat, said last month it may invest further in the company.
Marchionne must first reach agreement with the health-care trust over the price Fiat will pay for the trust’s holding.
A legal dispute between the two centers on whether the Italian company should increase its $139.7 million offer in a call option for a 3.3 percent Chrysler stake. The trust values the contested holding at a minimum of $342 million. The Delaware judge overseeing the case said in April that he’s “kind of leaning” in the trust’s direction.
Under the disputed agreement, Fiat holds options that require the labor group to sell almost 17 percent of Chrysler. Fiat is negotiating with the trust, which also has the legal right to push for a Chrysler initial public offering.
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