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John Deere did take $2 billion in bailout loans so will CNH need some help to overcome the refinancing of $6 billion in loans due in 2009?
CHICAGO (Dow Jones)-- Fiat SpA (FIATY) is relying on the repayment of internal loans by its farm equipment arm to ease its own liquidity squeeze and help fund a planned investment in Chrysler LLC (C.XX).
CNH Global N.V. (CNH) owes Fiat more than $5 billion, but would be saddled with more expensive replacement debt as it wrestles with weakening demand for its farm and construction machinery.
Fiat owns more than 90% of CNH and is looking for repayment of the internal loans as it confronts its own challenges: weak global auto sales and a credit rating in junk territory.
The company is in talks to acquire an initial 20% stake in Chrysler. While the stake will not involve any upfront cash payment, Fiat needs to retool plants in the U.S. to produce its own cars as part of any deal being approved by the U.S. Treasury.
The total cost of a Chrysler alliance has not been disclosed by Fiat, but analysts said CNH could suffer the indirect effects of the proposed pact.
"It's the last thing in the world anybody wants to have hanging over a company in this kind of a market," said analyst Lawrence De Maria at Sterne, Agee & Leach Inc. "(CNH's) financing costs are going to be much higher, and higher expenses in turn affects their ability to compete for new business."
Illinois-based CNH is the world's second-largest farm equipment manufacturer behind Deere & Co (DE). Its refinancing options are limited by its own junk-level credit rating.
Last week, CNH raised $500 million from the sale of asset-backed securities by its inhouse finance company, CNH Financial Services. That money went toward payment of Fiat loans.
A spokesman for CNH said the total amount that will be paid to Fiat won't be known until later in the year.
About $3 billion of the $5.2 billion of CNH's outstanding Fiat loans mature in 2009. The company also has an additional $3 billion in loans from other sources due this year. Most of the debt stems from CNH Financial Services, which makes loans to customers and dealers for equipment purchases.
Standard & Poor's, which lowered Fiat's credit rating Tuesday to below investment grade, said without money from CNH, Fiat lacks sufficient credit lines or cash to cover its financial maturities this year.
Fiat Chief Executive Sergio Marchionne has attributed the Italian auto maker's constricted liquidity to loans it made to CNH as U.S. credit markets tightened.
CNH recently suspended its stock dividend and imposed severe reductions in production in response to falling sales and rising equipment inventories.
In January the company warned that its 2009 equipment sales could fall by as much as 20% from 2008. The company has idled construction machinery manufacturing through the first half of the year and has reduced farm equipment production.
-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com
CHICAGO (Dow Jones)-- Fiat SpA (FIATY) is relying on the repayment of internal loans by its farm equipment arm to ease its own liquidity squeeze and help fund a planned investment in Chrysler LLC (C.XX).
CNH Global N.V. (CNH) owes Fiat more than $5 billion, but would be saddled with more expensive replacement debt as it wrestles with weakening demand for its farm and construction machinery.
Fiat owns more than 90% of CNH and is looking for repayment of the internal loans as it confronts its own challenges: weak global auto sales and a credit rating in junk territory.
The company is in talks to acquire an initial 20% stake in Chrysler. While the stake will not involve any upfront cash payment, Fiat needs to retool plants in the U.S. to produce its own cars as part of any deal being approved by the U.S. Treasury.
The total cost of a Chrysler alliance has not been disclosed by Fiat, but analysts said CNH could suffer the indirect effects of the proposed pact.
"It's the last thing in the world anybody wants to have hanging over a company in this kind of a market," said analyst Lawrence De Maria at Sterne, Agee & Leach Inc. "(CNH's) financing costs are going to be much higher, and higher expenses in turn affects their ability to compete for new business."
Illinois-based CNH is the world's second-largest farm equipment manufacturer behind Deere & Co (DE). Its refinancing options are limited by its own junk-level credit rating.
Last week, CNH raised $500 million from the sale of asset-backed securities by its inhouse finance company, CNH Financial Services. That money went toward payment of Fiat loans.
A spokesman for CNH said the total amount that will be paid to Fiat won't be known until later in the year.
About $3 billion of the $5.2 billion of CNH's outstanding Fiat loans mature in 2009. The company also has an additional $3 billion in loans from other sources due this year. Most of the debt stems from CNH Financial Services, which makes loans to customers and dealers for equipment purchases.
Standard & Poor's, which lowered Fiat's credit rating Tuesday to below investment grade, said without money from CNH, Fiat lacks sufficient credit lines or cash to cover its financial maturities this year.
Fiat Chief Executive Sergio Marchionne has attributed the Italian auto maker's constricted liquidity to loans it made to CNH as U.S. credit markets tightened.
CNH recently suspended its stock dividend and imposed severe reductions in production in response to falling sales and rising equipment inventories.
In January the company warned that its 2009 equipment sales could fall by as much as 20% from 2008. The company has idled construction machinery manufacturing through the first half of the year and has reduced farm equipment production.
-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com
