Chrysler 2014 Annual Report Download - page 34

32 2014 | ANNUAL REPORT
Risk Factors
Restrictive covenants in our debt agreements could limit our financial and operating flexibility.
The indentures governing certain of our 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.
For more information regarding our credit facilities and debt, see Liquidity and Capital Resources.
Restrictions arising out of FCA US’s debt instruments may hinder our ability to manage our operations on a
consolidated, global basis.
FCA US is party to credit agreements for certain senior credit facilities and an indenture for two series of secured
senior notes. These debt instruments include covenants that restrict FCA US’s ability to pay dividends or enter into
sale and leaseback transactions, 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 and February 2015, FCA US paid distributions of U.S.$1.9 billion and U.S.$1.3 billion,
respectively, to its members. Further distributions will be limited to 50 percent of FCA US’s cumulative consolidated
net income (as defined in the agreements) from the period from January 1, 2012 until the end of the most recent fiscal
quarter, less the amounts of the January 2014 and February 2015 distributions. See Liquidity and Capital Resources.
These restrictive covenants could have an adverse effect on our business by limiting our ability to take advantage of
financing, mergers and acquisitions, joint ventures or other corporate opportunities. In particular, the senior credit
facilities contain, and future indebtedness may contain, other and more restrictive covenants. These agreements also
restrict FCA US from prepaying certain of its indebtedness or imposing limitations that make prepayment impractical.
The senior credit facilities require FCA US to maintain borrowing base collateral coverage and a minimum liquidity
threshold. A breach of any of these covenants or restrictions could result in an event of default on the indebtedness
and the other indebtedness of FCA US or result in cross-default under certain of its or our indebtedness.
If FCA US is unable to comply with these covenants, its outstanding indebtedness may become due and payable and
creditors may foreclose on pledged properties. In this case, FCA US may not be able to repay its debt and it is unlikely
that it would be able to borrow sufficient additional funds. Even if new financing is made available to FCA US in such
circumstances, it may not be available on acceptable terms.
Compliance with certain of these covenants could also restrict FCA US’s ability to take certain actions that its
management believes are in FCA US’s and our best long-term interests.
Should FCA US be unable to undertake strategic initiatives due to the covenants provided for by the above-referenced
instruments, our business prospects, financial condition and results of operations could be impacted.
No assurance can be given that restrictions arising out of FCA US’s debt instruments will be eliminated.
In connection with our capital planning to support the Business Plan, we have announced our intention to eliminate
existing contractual terms limiting the free flow of capital among Group companies, including through the redemption of
each series of FCA US’s outstanding secured senior notes no later than their optional redemption dates in June 2015
and 2016, as well as the refinancing of outstanding FCA US term loans and its revolving credit facility at or before this
time. No assurance can be given regarding the timing of such transactions or that such transactions will be completed.