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- COMPTROLLER GENERAL OF THE UNITED STATES
WASHINGTON, D.C. 20548 !
B-195849 August 27, 1979
The Honorable Henry S. Reuss
Chairman, Committee on Banking, 1222
Finance and Uban Affairs- 120224
House of Representatives
Dear Mr. Chairman: EEASED
This is in response to your letter of August 20, 1979,
in which you posed certain questions about the risk exposure
and budget impact ofLvarious means of financing a hypothetical
loan of $1 oillion to the Chrysler Corporationi Our responses
to these questions, using the assumptions set orth in your
letter, are as follows:
.1. Would not the Federal Government's exposure be the
same if a Federal direct loan or loan guarantee were made to
Chrysler? The exposure would be the same unless there were
some differences in the terms of the financing. For example,
with a loan guarantee it is possible to require some measure
of coinsurance on the part of the primary lending institution.
Assuming a loan carrying such a coinsurance requirement were
marketable, it would serve to reduce the Federal Government's
exposure. It would also, however, undoubtedly raise the
interest rate charged on the underlying loan to compensate
for the increased risk faced by the lender. Other factors
which might alter the exposure of the Federal Government
would include, for example, the priority given the Federal
Government's claims to the assets of the Corporation in the
event of default. There is no basis, however, for assuming
that these would be different in the case of a direct loan
versus a loan guarantee.
2. What would be the difference between the Federal
Government making a loan or loan guarantee to Chrvsler as
far as its Federal oudgetary impact is concerned? If a
direct loan is made by an on-oudget Federal agency, the full
amount of the loan counts as budget outlays at the time it
is disbursed. Repayments and interest count as negative
outlays when they are received.
The direct loan case is complicated, however, when the
possibility exists of the loan being made by, or sold to,
an off-budget agency, such as the Federal Financing Bank. V i
In that situation, the direct loan outlays might never appear O[] [
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