Chrysler boosts cash-call hopes

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The Independent Online
AN OFFERING of 40 million Chrysler common shares worth dollars 1.6bn ( pounds 1.1bn), widely expected to hit financial markets this week, is likely to receive a warm reception thanks to an impressive turnaround at Detroit's third-ranked car maker.

Chrysler, whose very survival was in question a year ago, reported its best quarterly earnings in four years last week on strong sales. For the year, it almost completely reversed the dollars 795m loss it reported in 1991. The most ambitious launch in Chrysler's history - its new line of LH cars, its updated 1993 mini-vans and remodelled Jeep - appears to be a success, while its rivals are struggling to record a profit.

Aggressive cost-cutting is also bearing fruit for Chrysler. Some analysts suggest that the company may be the main beneficiary of any move by the Clinton administration to increase tariffs on imported vehicles. With the end of the roadshow for the new offering, Chrysler's share price hit dollars 40 on Friday from a 52-week low of dollars 14.

If the offering is fully subscribed, half will be used to reduce Chrysler's onerous pension liabilities. The car maker's near-bankruptcy in 1980 and again in 1990 resulted in a dollars 4.4bn shortfall in its retirement plan, a liability that was a factor in the June 1990 decision by Wall Street credit agencies to cut their ratings on its debt to below investment grade.

Last month the credit agencies, impressed by Chrysler's sales, raised its junk-level rating a notch, and have indicated they will raise it again if the offering succeeds.

That would still leave Chrysler a notch below investment grade, but analysts say they are confident that it can finance its needs from cash flow and from the proceeds of the offerings.

S&P expects Chrysler to return to financial health within 'a couple of years', but much will depend on the pace of growth in the US economy. In its prospectus for the offering, Chrysler warns its larger, more diversified competitors are probably in a better position to weather another downturn.