Chrysler Financing Runs Into Problems, But Deal Still On
Bankers have postponed the sale of $12 billion in debt to help private equity firm Cerberus Capital Management buy Chrysler Groupfrom DaimlerChrysler, fueling further nervousness in the credit and stock markets.
Instead, the banks have agreed to fund the bulk of that debt themselves.
The move isn't expected to affect the Aug. 3 closing date for the Chrysler purchase.
While the $12 billion automotive portion of the buyout ran into resistance in credit markets, the $8 billion in debt to buy Chrysler's finance unit will still be marketed.
The banks involved the deal, which include Goldman Sachs Group and JPMorgan Chase, will fund about $10 billion of the deal, reported the Associated Press, citing people who could not comment on the record because they were not authorized to speak publicly.
Cerberus -- the buyer -- and DaimlerChrysler -- the seller -- will together fund the other $2 billion. The banks will take a second-lien position behind Cerberus and Daimler , which means that Cerberus and Daimler would collect first in any default.
The move had been expected by Wall Street, as investors have become more reticent to buy into deals because of woes in the home-mortgage market and less demand for high-yield debt.
Cerberus plans to raise about $62 billion in total as part of a plan to recapitalize Chrysler and refinance old debt.
DaimlerChrysler Chief Financial Officer Bodo Uebber was asked about the issue during a conference call about the Mercedes Car Group and declined to comment on the financing and loan situation. Chairman Dieter Zetsche also declined to comment, but insisted the deal was on track to close as scheduled.
Financing Unit Loan Sale on Track
Bankers have had a better time raising about $6 billion in loans for Chrysler's finance unit, CNBC reported. Though terms had to be sweetened, that financing -- along with the $12 billion raised by the banks, Cerberus and DaimlerChrysler -- is expected to close on Aug. 3.
Other banks that will split the $10 billion financing include Citigroup, Morgan Stanley, BearStearns, Toronto-Dominion Bank, and the Royal Bank of Canada, AP reported.
Chrysler Group is in the midst of planning a massive celebration to mark its return to American control hands after nine years of ownership by the German-based automaker. Cerberus, one of the largest U.S. buyout shops, announced in May it would pay $7.4 billion to buy the company from Daimler.
Cerberus' bid to buy Chrysler is a stunning reversal of the takeover of the Jeep and Dodge maker by Daimler Benz in 1998. Although it was billed as a merger that would create a global automotive powerhouse, the corporate cultures clashed and the companies never fully integrated their operations.
Alliance Boots Withdraws Debt Sale
Meanwhile, the sale of bonds for a separate transaction in the U.K. was scrapped Wednesday.
British health and beauty chain Alliance Boots withdrew plans to sell $10.4 billion of senior debt to finance a leveraged buyout by Kohlberg Kravis Roberts -- Europe's biggest leveraged buyout in history.
Plans to sell a smaller portion of lower-rated debt are moving forward.