Italy approves guarantees for $7.1 billion loan to Fiat ChryslerItaly has approved a decree offering state guarantees for a 6.3-billion euro ($7.1 billion) loan to Fiat Chrysler’s (FCA) (FCHA.MI) Italian unit, the Treasury said on Wednesday, paving the way for the largest crisis loan to a European carmaker.
The formal announcement follows an endorsement by the country’s audit court and brings to an end a lengthy approval procedure for the loan, which has drawn criticism in Italy.
By providing state support, Rome “aims to preserve and strengthen the Italian automotive supply chain,” Economy Minister Roberto Gualtieri said in a statement.
FCA’s Italian division has tapped Rome’s COVID-19 emergency financing schemes to secure a state-backed, three-year facility to help it weather the crisis triggered by the coronavirus pandemic. The aid will also help Italy’s broader car sector, in which about 10,000 businesses operate.
“100% of the money this facility provides will be directed to our Italian business ... as we continue a transformative shift to a new electric and hybrid powered future,” said Pietro Gorlier, FCA’s chief operating officer for Europe, the Middle East and Africa.
The loan will be disbursed by Italy’s biggest retail bank Intesa Sanpaolo which has already authorized it pending the approval of guarantees the government will provide on 80% of the sum through export credit agency SACE.
Italian politicians have called the dividend into question, although it should be compatible with the terms of the financing, because it is not due until 2021 and would be paid by FCA Italy’s Dutch parent company, Fiat Chrysler Automobiles NV.
Chrysler loan guarantee by the U.S. Government of 1980 was at the interest rate of 10.35%, while this loan that's 80% guaranteed by the Italian Government will be priced below 2% interest.
Chrysler loan guarantee included stock warrants for U.S. Government of Chrysler stock, while the Italian Government gets no warrants from this'' 80/20'' Loan.
Chrysler loan guarantee barred dividends to shareholders, but this ''80/20'' Loan allows the special dividend to be paid to FCA shareholders as part of FCA-PSA Merger.
Chrysler loan guarantee placed limits on executive compensation, while a FIAT loan guarantee by the Italian Government in early 90's not only placed limits on executive compensation, but placed rules on corporate Governance & Management of FIAT including barring Gianni Agnelli (John Elkann's grandfather) from retiring from FIAT until the loan was repaid. No such rules exist on this
'' 80/20'' loan to FCA Italy.
The ''80/20'' loan guaranteed by the Italian Government for FCA Italy bans the sale/transfers of Italian assets & operations of FCA, and prohibits Italian Job cuts/eliminations. The ''80/20'' loan guarantee brings back ''ringfencing/Firewall'' but this time for the Italian side of the house....no money can be mix up and sent to the rest of FCA (including North America).
It is unclear at this stage whether or not the '80/20'' loan guarantee is secured by all or some of FCA Italy or is an unsecured loan, the Chrysler loan guarantee of the 80's as well the FIAT loan guarantee of the early 90's was secured by nearly all assets & operations of Chrysler & FIAT respectively.
Seems to way better terms than past guarantees, but it adds complexity to FCA-PSA Merger, including how PSA's cash will be handled.
While its better than the interest rates GM & Ford are paying on Wall Street barrowings (upper 6%-low 9%), but it bad news for Opel/Vauxhall plants in U.K. and Spain.