Chrysler $4 Billion Loan Sale Postponed: WSJ
A $4 billion sale of loans being raised by automaker Chrysler following its takeover by buyout firm Cerberus has been indefinitely postponed, the Wall Street Journal reported.
As a result, the debt, along with another $3 billion of loans attached to Chrysler's Automotive unit, will stay on the books of the deal's underwriters: JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley and BearStearns, the Journal reported.
Recently, a plan was put in place to sell the debt at about 97 cents on the dollar, but the plan apparently was not enough of a discount.
Weak credit markets and worsening news from the U.S. autos sector were behind the latest postponement, one source told Reuters. Sources said on Monday that a postponement was likely.
Underwriters have been trying to sell $4 billion of Chrysler's debt to investors in the past few weeks and had set a Monday deadline to participate in the sale, sources previously told Reuters.
Cerberus Capital Management closed its $7.4 billion deal to buy a majority stake in Chrysler in August from the automaker's former parent, Daimler.
The deal to buy Chrysler has already been funded by the underwriters. Those underwriters are now trying to sell a majority of the debt on to other investors.
They tried to do this in late July but postponed the sale because credit markets were weak. Since the deal closed, proceeds of the loan have been used to fund working capital for Chrysler.
Several separate sources told Reuters that the $4 billion debt sale was likely to be postponed. Confirmation of whether the sale was actually delayed was likely to be known in the next few days, those sources said.
In the three months since the deal closed, Cerberus has moved to step up the pace of a restructuring plan for Chrysler amid signs of a deepening slump in U.S. auto sales.
Feeling Heat on Other Deals
Cerberus is also under pressure related to other deals it launched when credit markets were more accommodating for leveraged buyouts.
Cerberus pulled out of a planned $4 billion leveraged buyout of equipment rental company United Rentals last week and faced mounting concern from creditors over the outlook for GMAC mortgage unit ResCap Monday. An investor group led by Cerberus bought a 51 percent stake in GMAC last November from General Motors.
Sales for Chrysler, which counts on North American sales for nearly all its revenue, were down almost 4 percent in the first 10 months of the year.
Industry-wide U.S. auto sales are expected to contract for a second-consecutive year in 2007 to near 16 million units and investors see a risk of an extended decline next year.