Chrysler 2013 Annual Report Download - page 41

40 Report on Operations Main Risks and Uncertainties to which Fiat S.p.A.
and its Subsidiaries are Exposed
Among the anticipated benefits of the corporate reorganization announced in January 2014 is the expected reduction in funding costs over
time due to improved debt capital markets positioning of the combined entity. However, certain of the circumstances and risks described may
delay or reduce the expected cost savings from the future funding structures and the expected cost savings may not be achieved in full or at all.
Even after the acquisition by Fiat, Chrysler continues to manage financial matters, including funding and cash management, separately.
Additionally, Fiat has not provided guarantees or security or undertaken any other similar commitment in relation to any financial obligation of
Chrysler, nor does it have any commitment to provide funding to Chrysler in the future.
Furthermore, certain bonds issued by Fiat include covenants that may be affected by circumstances related to Chrysler. In particular, these
bonds include cross-default clauses which may accelerate the relevant issuer’s obligation to repay its bonds in the event that a “material
subsidiary” of Fiat fails to pay certain debt obligations on maturity or is otherwise subject to an acceleration in the maturity of any of those
obligations. Chrysler Group LLC is a “material subsidiary” and certain of its subsidiaries may become material subsidiaries of Fiat within
the meaning of those bonds. Therefore, the cross-default provision could require early repayment of the Notes or those bonds in the event
Chrysler’s debt obligations are accelerated or are not repaid at maturity. There can be no assurance that the obligation to accelerate the
repayment by Chrysler of its debts will not arise or that it will be able to pay its debt obligations when due at maturity.
In addition, one of Fiat’s existing revolving credit facilities, expiring in July 2016, provides for some limits on Fiat’s ability to provide financial
support to Chrysler.
27. Restrictive covenants in the Group’s debt agreements could limit its financial and operating flexibility
The indentures governing certain of the Group’s outstanding public indebtedness, and other credit agreements to which companies in the
Group are a party, contain covenants that restrict the ability of companies in the Group to, among other things:
incur additional debt;
make certain investments;
enter into certain types of transactions with affiliates;
sell certain assets or merge with or into other companies;
use assets as security in other transactions; and
enter into sale and leaseback transactions.
28. Risk associated with restrictions arising out of Chrysler’s debt instruments
Chrysler is party to a credit agreement for certain senior secured credit facilities and an indenture for two series of secured senior notes. These
debt instruments include covenants that restrict Chrysler’s ability to make certain distributions or purchase or redeem capital stock, prepay
other debt, encumber assets, incur or guarantee additional indebtedness, incur liens, transfer and sell assets or engage in certain business
combinations, enter into certain transactions with affiliates or undertake various other business activities.
In particular, in January 2014, Chrysler paid a distribution of USD 1.9 billion to its members. With certain exceptions, further distributions will
be limited to 50 percent of Chrysler’s consolidated net income (as defined in the agreements) from the period from January 2012 until the end
of the most recent fiscal quarter, less the amount of the January 2014 distribution.