Advertisement

MARKETS

Chrysler sale financing is reworked

A tightening credit market forces banks to hold on to $10 billion in loans for the deal for the automaker.

July 26, 2007|From Times Wire Services

Chrysler Group's sale to Cerberus Capital Management will be completed after banks agreed to keep $10 billion of loans that investors refused to buy, according to investors who were briefed on the decision.

Cerberus and DaimlerChrysler, the German parent of Chrysler, agreed to assume an additional $2 billion of loans, the investors said. In the event of a bankruptcy, the private equity firm and the automaker will be repaid on those loans before the banks get their money back.

Chrysler scrapped the sale of the $12 billion in debt after banks led by JPMorgan Chase & Co. found insufficient demand for it.

Cerberus, which didn't have trouble finding lenders last year for its $7.4-billion purchase of a stake in General Motors Corp.'s finance unit, couldn't find buyers for the Chrysler loans even after twice raising interest rates.

Auburn Hills, Mich.-based Chrysler joined almost 40 companies that have reworked or abandoned debt offerings in the last three weeks.

Also Wednesday, banks scrapped a sale of $10 billion of loans for Kohlberg Kravis Roberts & Co.'s buyout of British healthcare-product company Alliance Boots.

"People have basically put the 'Closed for Business' sign out," said Shelly Lombard, an analyst at bond research firm Gimme Credit Publications Inc. in Montclair, N.J. "You never know what's going to make it switch, but investors turn that switch off so fast."

Chrysler will proceed with plans to sell $8 billion of debt for its financing division after raising interest rates on it.

Cerberus agreed in May to buy 80.1% of Chrysler from Germany's DaimlerChrysler. As part of the agreement, Cerberus is to invest about $5 billion in the automotive unit and about $1.1 billion in the financial services unit. DaimlerChrysler is to hold the remaining 19.9% and receive $1.3 billion from Cerberus.

DaimlerChrysler Chief Executive Dieter Zetsche reiterated Wednesday that the sale of Chrysler would take place by the end of September. The transaction is scheduled to close in early August, investors said, citing documents from the banks.

As Chrysler and its banks, which included Citigroup Inc., Goldman Sachs Group Inc., Bear Stearns Cos. and Morgan Stanley, sought to arrange financing for the Cerberus deal, investors vanished as a crisis in the market for bonds backed by sub-prime mortgages began to spread to the market for corporate debt, increasing the cost of borrowing for companies seeking high-yield, high-risk loans.

Companies including credit card processor First Data Corp. and energy company TXU Corp. plan to raise about a quarter-trillion dollars in junk-rated loans and bonds in the next nine months to finance a record number of leveraged buyouts.

Advertisement
Los Angeles Times Articles
|
|
|