Currently, the federal loan is pegged at 12% interest, and the refinancing/reorganization of its debt would end up giving the company a 6% interest rate. It's in the company's interest to reduce its interest rates, and shedding the government loan is a big part of that cost savings.
However, make no doubt about this - Chrysler/Fiat is still in trouble and it isn't paying off the debt completely; it's simply eliminating the federal loan in favor of cheaper loans in the private market. The move will apparently save $300 million annually in interest payments.
Marchionne has said that Chrysler is eager to pay back its loans in part because of the governments' high interest rates of around 12 percent, which cost the company $1.2 billion last year.
To pay back the loans, Chrysler is issuing $3.2 billion in bonds and taking out $4.3 billion in bank loans. It also will use a $1.3 billion investment from Italian automaker Fiat SpA. In exchange, Fiat will increase its ownership stake in Chrysler to 46 percent.
Under that refinancing deal, Chrysler's interest rates will fall to around 6 percent. That will boost the bottom line at the company. It reported a $116 million profit — its first quarterly profit since its 2009 bankruptcy — in the first quarter.
The company still owes the U.S. government $2 billion. The government could get some of that back by selling its 8.6 percent stake in Chrysler.