MAY 19, 2011, 2:23 P.M. ET.

Chrysler Nears $7.5 Billion Debt Sale to Repay Bailout

By KATY BURNE

Chrysler Group LLC is nearing its goal of repaying the U.S. and Canadian governments by raising $7.5 billion in fresh debt. But to do so the company chose to tweak the structure of its debt package Thursday for the second time this week, according to people familiar with the transaction.

The six-year term loan was increased to $3 billion from a planned $2.5 billion, said people familiar with the deal, and the company's junk-bond offering was cut to $3.2 billion in second-lien notes from a planned $3.5 billion sale.

Chrysler's total capital raising will remain $7.5 billion, since it is separately putting in place a revolving credit facility in the amount of $1.3 billion, down from a planned $1.5 billion.

"They are raising more or less what they wanted to raise, but they had to shift it around a bit because of the demand for different tranches," said Gregory Maddock, director at Standard & Poor's.

Shawn Morgan, a spokesman for the Auburn Hills, Mich., auto maker declined to comment.

The sale comes as Italian auto maker Fiat SpA seeks to boost its stake in the company to 46% from 30% via a $1.3 billion equity injection. One condition of that stake increase was that the maker of Chrysler, Jeep and Dodge vehicles repay government loans.

These include separate $3.76 billion and $2.08 billion credit facilities from the U.S. Treasury and $500 million and $1.18 billion facilities from Export Development Canada—for combined borrowings of $7.52 billion.

Price guidance on the $3 billion loan remains unchanged at 4.75 percentage points above the London interbank offered rate, or Libor, with a discounted offer price of 99 cents on the dollar and a Libor floor set at 1.25%.

Final pricing is expected later this session.

The company dialed back the size of the loan earlier this week to $2.5 billion from an original $3.5 billion, but decided to increase it again after "demand kicked up over the past couple of days," one person familiar with the matter said.

The loan won't be callable for the first year, but will be callable at a premium of 102 cents on the dollar in the second year and 101 cents on the dollar in the third year.

"Loan investors were badly burned in both the General Motors and Chrysler bankruptcies, when they were effectively crammed down by the pension and retiree benefits liabilities," said Kip Penniman, an analyst at research firm KDP Investment Advisors Inc. "That's probably a major reason why investors pushed back so hard. When the new loan terms were released, investors reacted favorably and oversubscribed."

The $3.2 billion of junk bonds are being offered in two parts: an eight-year tranche and a 10-year tranche. The total was increased earlier in the week by $1 billion, reaching $3.5 billion, before it was cut back. Price guidance on the bonds remains unchanged at 7.75% to 8% on the notes due 2019 and 8% to 8.25% on the notes due 2021. There is no indication of how these tranches are sized yet, but originally they were split evenly at $1.75 billion apiece. The 10-year tranche is currently seeing more demand, the person familiar said.

Lead bookrunners on the term loan are Morgan Stanley and Goldman Sachs Group Inc., supported by Bank of America Corp.'s Bank of America Merrill Lynch and Citigroup INc. as joint bookrunners. The bond is being led by Bank of America and Goldman, supported by Citi and Morgan Stanley. Citi is also lead arranger and bookrunner on the revolver, supported by BofA, Goldman and Morgan. Representatives for these firms declined to comment.

Since the structure of the deal changed a second time, S&P issued a note Thursday saying it may raise its expected ratings of the loan to BB from BB-minus, and to B from B-minus on the bonds. That's because recovery assumption in a potential default on the loan rose to at least 90 cents on the dollar compared to 70-90 cents before the changes; and to 10-30% recovery on the bond compared to 0-10% before, Mr. Maddock said.

Expected ratings from Moody's Investors Service are Ba2 on the loan and B2 on the bonds; officials at the rater didn't return requests for comment about any changes.

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