US government in bailout loan to car maker

The US Treasury Department said tonight it will provide a $1.5bn loan to Chrysler LLC’s financing arm to be used for new vehicle loans in hopes of boosting sales and ultimately returning the car maker to profitability.

The US Treasury Department said tonight it will provide a $1.5bn loan to Chrysler LLC’s financing arm to be used for new vehicle loans in hopes of boosting sales and ultimately returning the car maker to profitability.

The Treasury said the new aid will be in addition to the $17.4bn in loans earmarked for both Chrysler and General Motors last month in an effort to buy time for the two companies to reorganise.

“This funding will better position us to withstand the current economic challenges until funding becomes available through more traditional commercial sources,” Thomas Gilman, Chrysler Financial’s vice chairman and chief executive, said in a statement.

The first 100 million dollars under the loan is expected to be available next week.

The terms require Chrysler to pay interest at a rate 1 percentage point higher than the one-month the London Interbank Offered Rate for the first year, increasing to 1.5 points above Libor for the remainder of the five-year term. At today’s Libor, that’s an initial rate of about 1.36 %.

A special purpose entity created by Chrysler Financial will also issue warrants to Treasury in the form of additional notes in an amount equal to 5% of the total size of the loan.

Battered Chrysler saw its sales plunge 53% last month, far worse than for GM or Ford Motor, and analysts have said it probably won’t survive the year as an independent company – despite the 4 billion-dollar loan it received from the US government. Chrysler had been counting on an additional 3 billion dollars in aid for Chrysler Financial.

The US government settled on 1.5 billion dollars after consulting with Chrysler Financial in recent weeks and getting an assessment of the company’s financial situation, said a government official who spoke on condition of anonymity because he wasn’t authorised to speak publicly about the transaction.

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