22 January 2009

Chrysler Financial Gets Loan

As posted by: Wall Street Journal

The U.S. Treasury Department extended $1.5 billion in emergency loans to Chrysler LLC's lending arm and has begun discussions with Ford Motor Co.'s lending unit about its own financing needs, a government official said.

The five-year loans to Chrysler Financial LLC will be extended as part of Treasury's $700 billion Troubled Asset Relief Program. Chrysler was to get the first $100 million loan installment on Friday, with another installment this week, a government official said. The government will receive notes equal to 5% of the loan package.

The Chrysler deal, capping weeks of talks, was structured to ensure the cash infusion will be used to finance new consumer auto loans, the official said. It comes less than a month after Treasury extended $6 billion to General Motors Corp.'s GMAC lending arm. Chrysler has contended that the money to GMAC put Chrysler at a disadvantage.

Ford, meanwhile, has also been in talks with the Treasury, a government official said on Friday. The talks began shortly after Congress failed late last year to pass an auto-aid package. The official declined to say whether Ford's lending arm, Ford Motor Credit, is seeking aid.

Friday's agreement cleared the way for Chrysler Financial to expand credit to a wider base of customers and spur the company's U.S. car sales, which account for about 80% of the auto maker's overall sales. Customers, including those with credit scores in the 620 range, will be able to apply for loans. Dealers have said about 25% of their customers haven't been able to access loans because of tighter restrictions. The company is now offering 0% financing for as long as 60 months when financing a Chrysler, Jeep or Dodge vehicle.

"This funding will provide us with increased capacity to help Chrysler LLC and our dealers make new loans available to qualified consumers and sell more cars and trucks," said Thomas F. Gilman, vice chairman and chief executive of Chrysler Financial.

The deal was structured so the loans will be extended to a "special-purpose entity" created by Chrysler Financial. Under that arrangement, "we would not be in line with other creditors" who would be affected by a bankruptcy filing by Chrysler Financial, the government official said.

The special-purpose entity created by Chrysler Financial will issue warrants to the Treasury in the form of additional notes in an amount equal to 5% of the total size of the loan. The additional notes will vest 20% on the closing date and 20% on each anniversary of the closing date and will have other terms similar to the loan.

Chrysler's new car and truck sales fell 53% in December from the same month a year earlier. For the year, sales fell 30% in the U.S., with Chrysler selling 1.45 million cars and trucks.

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