By refinancing Chrysler can repay a the bulk of the bailout from the U.S. and Canada, which carry high interest at 12%, and by extension save millions as they continue their quest to make an IPO later this year. Interest on the government loans cost the company an estimated $1.2 billion in 2010. Those interest payments were a big factor in Chrysler reporting a loss of over $650 million.
The company plans to sell bonds to institutional investors in a private offering to obtain the money to repay the government loans. Fiat, which runs Chrysler, will pay $1.3 billion to the company once the government loans are repaid. In exchange Fiat, which currently owns 30% of the company will get an additional 16% . Fiat can get another 5% (to total 51% ownership) when the company produces a 40 mpg car for the U.S. market.