DETROIT -- Sergio Marchionne, CEO of Fiat and Chrysler, said today Chrysler Group could repay $7.53 billion in debts to the U.S. and Canadian governments before the end of June.
"I think it's time to finally close the loop in an incredibly necessary intervention. We need to close that chapter," Marchionne told a group of reporters at Chrysler's Jefferson Avenue plant in Detroit. "I think it will be a great accomplishment if we can get it done two years after coming out of bankruptcy."
Chrysler emerged from bankruptcy in June 2009 under the management of Italy's Fiat S.p.A. The automaker took bailout loans from the U.S. government as well as the federal and provincial governments of Canada.
Marchionne was at the Detroit plant to meet with U.S. Treasury Secretary Timothy Geithner. They toured the plant together in the early afternoon. Chrysler produces the Jeep Grand Cherokee and the Dodge Durango there. Geithner did not address the media.
Chrysler's debt-refinancing deal would allow proceeds from a term loan and debt securities sold to institutional investors to pay down the debt to the governments, Chrysler said in a statement today. Chrysler made the announcement ahead of Geithner's visit.
Repaying the loans from the U.S. and Canadian governments would mark a critical step for Chrysler as it tries to distance itself from the controversial 2009 rescue by the Obama administration and rebuild consumer confidence in the brand.
"To be honest, I think there has been some bias in the public perception about what happened here in 2009, but it hasn't been lethal," Marchionne said today. "There's not a single doubt in my mind that once we manage to pay back the U.S. and Canadian governments, the perception of our brands will substantially improve."
Chrysler also hopes the deal will ease Department of Energy concerns about the automaker and allow the federal agency to grant the company as much as $3.5 billion in low-interest loans. The money would be used to refit Chrysler plants to build more fuel-efficient vehicles -- a priority of President Obama's.
Further details will likely be disclosed on Monday when first-quarter earnings are reported, Marchionne said. Although he did not discuss Chrysler's first quarter results, he said he is comfortable with Chrysler's ability to post an operating profit, something the automaker has not done in a quarter since it emerged from bankruptcy.
The loan repayments will also put the company on firmer financial footing by allowing Chrysler to forgo the high interest rates on the government debt. Chrysler has said its effective interest on the borrowings from the United States is as high as 14 percent and as much as 20 percent on the Canadian debt.
Marchionne did not disclose what the interest rate changes would be, saying only that he thinks it will make a "material difference to our profit and loss." He has said the loans have undercut the company's ability to return to profitability.
Morgan Stanley said in a report today that the debt restructuring will save Chrysler about $500 million per year in interest payments.
Fiat announced earlier that it plans to buy an additional 16 percent stake in Chrysler for $1.27 billion, up from the current 30 percent. The debt offering, term loans and the cash infusion from Fiat are all expected to occur concurrently, the company said.
Marchionne said he has been assured Fiat has the capital to "do what needs to be done."
The face values of the debts to the U.S. and Canadian governments are $7.53 billion, according to Chrysler's Feb. 25 Securities and Exchange Commission filing. About $5.8 billion of that is owed to the U.S. government, a Chrysler spokeswoman said. Those debts must be repaid before Fiat can exercise its option to purchase the additional 16 percent stake.
Analysts and bankers have said this would make the U.S. automaker a more attractive story for potential investors in an initial public offering that could come as early as this year. Next month, Chrysler executives will begin to court potential debt investors, primarily in North America, as part of a road show.
Marchionne did not say if Chrysler would seek an initial public offering this year.
"It's a complex decision. We need to wait," he said. "Let's get this issue out the way first."
Laurén Abdel-Razzaq, Bloomberg, and Reuters contributed to this report.