Chrysler close to $6.8 billion loan

August 18, 1992|By New York Times News Service

DETROIT -- With only one of 152 banks still declining to sign a $6.8 billion loan agreement, Chrysler Corp. appeared to be very close yesterday to wrapping up the arrangement, which is crucial to its revitalization.

An executive with the automaker, who spoke on condition of anonymity, declined to identify the lone holdout bank.

In recent weeks, Chrysler solicited the help of Alan Greenspan, chairman of the Federal Reserve, to persuade German central bankers to use their influence on German banks that were holding out.

All of the banks belong to a consortium that has been lending to Chrysler for about four years. The interest rate and charges on the new agreement are significantly higher than in the old one, reflecting perceptions that the company poses a higher risk because of the recession and its fragile financial condition.

Still, Chrysler officials have been confident that the agreement will be completed by the end of the week. Officially, the company declined to comment on the negotiations.

If the agreement, which stipulates unanimous participation among the lenders, is not complete by the end-of-the-week deadline, the automaker and its lead banks, Chemical Banking Corp. and Swiss Bank Corp., could be forced to start negotiations all over.

The $6.8 billion loan replaces a loan of equal size to Chrysler Financial Corp. that comes due in March and April.

The money is used to finance retail vehicle purchases and dealers' wholesale inventory.

Negotiating such loans has been routine in the past, but the process has been clouded by Chrysler's thin financial resources and regulatory pressure on banks.

Among the big question marks on Chrysler's books is a $4 billion unfunded liability for employees' pensions.

The automaker asserts that an array of new models and higher demand for vehicles will allow it to pay off the liability over 10 years and to finance multibillion-dollar new-product programs.

Low ratings on Chrysler's debt securities by ratings agencies have made it prohibitively expensive for the company to raise money in the public markets.

Several U.S. banks initially resisted participation in the loan because they had changed their lending strategy to one that avoids large lending syndicates. But the pressure to join the Chrysler syndicate has been heavy because the fate of the company could be at stake.

First Fidelity Bancorporation, a large banking company in New Jersey, said it would not comment on reports that it was the bank holding up Chrysler's financing.

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