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November 23, 2007 |
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CHRYSLER LLC: Financing Deal Bump Signals More Debt Market Woes The recent postponement of the sale of Chrysler LLC's US$4 billion loans, combined with Freddie Mac's credit losses, have dampened the outlook for the U.S. credit markets, MarketWatch reports. The TCR-Europe reported on Nov. 9, 2007, that JPMorgan Chase and Co., Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and Bear Stearns & Co. had initially planned to sell Chrysler's US$4 billion loans at about 97.5 cents on the dollar to lessen the company's US$171 billion leveraged loan backlog. In spite of strong demand for the deal, however, the banks decided to shelve the sale due to weak credit markets and worsening news from the U.S. automotive sector, Reuters relates, citing an unidentified source. This is particularly deflating for the corporate credit market, MarketWatch observes. "It shows how tough the market has become," said Steve Miller, a managing director for Standard & Poor's LCD, MarketWatch notes. "We had a really strong run after Labor Day, money poured in from (the high-yield bond market) and all of this paper started to clear." "The last four weeks, the anxiety level has gone up. Some of the money has poured out of high yield and that's tricked down to the loan market and driven prices down. Chrysler is a harbinger," MarketWatch quotes Mr. Miller as saying. Concurrently, loans sold recently have fallen in value in the secondary market, and there remains close to US$300 billion in LBO debt that needs to be financed. U.S. LBO volume was up 143% through September, MarketWatch states. There is no longer any hope that investors would return to back leveraged buyouts, which could, in turn, stall other planned mergers and acquisitions. In effect, the postponement of the sale of Chrysler's loans marks the halt of other deals as well, MarketWatch suggests. About Chrysler LLC Headquartered in Auburn Hills, Michigan, Chrysler LLC -- http://www.chrysler.com/ -- offers cars and minivans, pick-up trucks, sport utility vehicles, and vans under the Chrysler, Jeep, and Dodge brand names. It also sells parts and accessories under the MOPAR brand. The company has dealers worldwide, including Canada, Mexico, U.S., Germany, France, U.K., Argentina, Brazil, Venezuela, China, Japan and Australia. Chrysler LLC is facing a difficult market environment in the United States with excess inventory, non-competitive legacy costs for employees and retirees, continuing high fuel prices and a stronger shift in demand toward smaller vehicles. At the same time, key competitors have further increased margin and volume pressures -- particularly on light trucks -- by making significant price concessions. In addition, increased interest rates caused higher sales & marketing expenses. * * * The TCR-Europe reported on Aug. 8, 2007, that Moody's Investors Service has affirmed Chrysler Automotive LLC's B3 Corporate Family Rating, and the Caa1 (LGD4, 66) rating of the company's US$2 billion senior secured, second lien term loan in connection with Monday's closing of Daimler Chrysler AG's sale of a majority interest of Chrysler Group to Cerberus Capital Management LLC. |
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