Chrysler Group LLC, the automaker seeking private funding to repay U.S. and Canadian bailouts, shifted the mix of loans and bonds it’s marketing for the second time this week as it gauged investor interest.
The carmaker raised the size of a term loan it’s seeking and cut the amount of high-yield bonds it plans to issue, according to people familiar with the transaction. It now plans to pay lenders 4.75 percentage points more than the London interbank offered rate on a $3 billion term loan. The loan will have a minimum floor on the Libor rate of 1.25 percent and be sold at 99 cents on the dollar, said the people, who declined to be identified because the terms are private. Chrysler is also marketing $3.2 billion of junk bonds, down from $3.5 billion.
“The company would like to do as much in loans as possible,” said Marc Gross, a New York-based money manager at RS Investments, who cited the cheaper cost of repaying loans. Gross helps oversee $3 billion in fixed-income funds.
Chrysler is seeking as much as $7.5 billion of debt to repay the U.S. and Canadian governments. At the same time, Italian partner Fiat SpA wants to increase its ownership stake in the U.S. automaker as Chief Executive Officer Sergio Marchionne prepares to take Chrysler public.
Today’s shift marks the second change to the company’s proposed debt structure this week. It decreased the size of the term loan to $2.5 billion from the initially proposed $3.5 billion on May 17, and increased the interest it was willing to pay along with the amount of bonds it planned.
Eileen Wunderlich, a spokeswoman for Auburn Hills, Michigan-based Chrysler, declined to comment.
Junk Yields Fall
The average absolute yield on junk bonds fell to a record low of 7.19 percent May 16 from 7.85 percent at year end, according to the Bank of America Merrill Lynch U.S. High Yield Master II Index. Companies have sold $149.5 billion of the bonds this year through yesterday, compared with $110.5 billion during the year earlier period, Bloomberg data show.
High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.
The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 Index closed yesterday at 95.59 cents on the dollar. It has been trading this year at an average price of 95.67 cents, the strongest since November 2007.
Morgan Stanley is arranging Chyrsler’s term loan. Bank of America Corp. will manage the bond sale and Citigroup Inc. is arranging a revolving loan, two other people briefed on the matter said last week. The size of the revolver Chrysler is seeking decreased to $1.3 billion from $1.5 billion, three people said today.
In a revolving credit facility, money can be borrowed again once it’s repaid; in a term loan, it can’t.
Moody’s Investors Service rated Chrysler B2, its first-lien senior secured loans Ba2 and the second-lien notes B2, it said May 3. Standard & Poor’s rated the issuer B+.
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