The sale of Chrysler to Cerberus Capital Management cleared a roadblock raised by the spreading subprime-mortgage crisis.
(Carlos Osorio/Associated Press)
Banks rescue Chrysler sale to Cerberus
JPMorgan Chase, others will keep the unsold loans
The sale of Chrysler to Cerberus Capital Management cleared a roadblock raised by the spreading subprime-mortgage crisis.
(Carlos Osorio/Associated Press)
NEW YORK -- Chrysler's sale to Cerberus Capital Management LP will be completed, after banks agreed to keep $10 billion of loans that investors refused to buy.
The DaimlerChrysler AG unit scrapped the sale of loans after banks led by JPMorgan Chase & Co. failed to find demand, said investors briefed on the decision. In addition to the banks, Cerberus and DaimlerChrysler agreed to assume $2 billion of loans.
Cerberus, which last year didn't have trouble finding lenders 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 joins almost 40 companies that reworked or abandoned deals in the past three weeks. Yesterday, banks scrapped a sale of $10 billion of loans for Kohlberg Kravis Roberts & Co.'s buyout of Alliance Boots PLC.
"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 loans for its financing division after raising interest rates.
Cerberus agreed in May to buy 80.1 percent of Chrysler from DaimlerChrysler. As part of the agreement, Cerberus will invest about $5 billion in the automotive unit and about $1.1 billion in the financial services unit, and pay $1.3 billion to Stuttgart, Germany-based DaimlerChrysler, which will hold the remaining 19.9 percent.
DaimlerChrysler chief executive Dieter Zetsche reiterated yesterday that the sale of Chrysler will take place this quarter. The transaction is scheduled to close in early August, investors said, citing documents provided by the banks.
As Chrysler and its banks, which also included Citigroup Inc. and Goldman Sachs Group Inc., sought financing for the Cerberus deal, investors vanished amid a crisis in the market for subprime mortgage bonds.
The tumbling value of securities backed by home loans to people with poor credit widened to the corporate market, increasing the cost of borrowing for companies seeking high-yield, high-risk loans.
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