Fiat faces hurdles to accessing Chrysler cash after merger

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MILAN (Reuters) -- Fiat Chrysler Automobiles group said today that its access to the cash of Chrysler, which it took full control of last month, was limited by a cap on dividends from the U.S. automaker and its debt covenants.

Part of the motivation for Fiat's $4.35 billion deal to take full ownership of the No. 3 U.S. carmaker was to give the Italian carmaker access to Chrysler's finances so it could invest in new models to revamp its money-losing operations in Europe.

Analysts have raised concerns about Fiat's growing debt pile and its ability to fund a strategy that will shift the automaker's focus to its upscale Maserati and Alfa Romeo brands from an over-reliance on low-margin mass-market models.

Responding to a request for clarification from market regulator Consob, Fiat said in a statement that beyond the cap, dividend payments were also subject to the condition that Chrysler's liquidity exceeds a threshold of $3 billion. It said Chrysler's liquidity totaled $14.7 billion at the end of 2013.

Fiat also said intercompany financing was limited by covenants that require deals to be approved by a majority of "disinterested" members of the Chrysler board of directors.

Fiat said it had enough resources to fund its activities, however. "On the basis of the group's available liquidity, credit lines in place and available for investment in industrial activities, in addition to the ability to access capital markets ... the group believes its capital resources are more than adequate to meet the projected funding requirements," it said in a statement.

Rating cut

Following a rating cut by Moody's last week, Fiat said the downgrade would only trigger a marginal rise in commitment fees on a revolving credit line of 2.1 billion euros ($2.87 billion), currently undrawn. The company also said it expects the downgrade's impact on future borrowings to be limited.

Moody's cut Fiat's rating to four notches below investment grade last week, citing weaker-than-expected 2013 results and challenges to the carmaker's outlook for this year given eroding profitability in Latin America.

Expanding on the 2014 outlook given at the end of January, Fiat said it expected volumes and revenues in the Europe, Middle East and Africa (EMEA) regions to be "substantially in line with 2013," given flat demand and pricing pressures.

In Latin America, a key market for the Italian auto group, Fiat expects to maintain its market position despite higher competition, while overall car demand in that region is forecast to remain at 2013 levels.

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