Cerberus donates Chrysler equity in rescue package

The New York-based firm will use its equity in Chrysler’s automotive operations as an incentive for labour and creditors in the restructuring of the struggling automaker, while cautioning that its funds are not an ‘ATM machine’.

Cerberus Capital Management is conceding its equity position in Chrysler’s automotive operations to help facilitate a government bailout program that will inject $4 billion into the ailing US automaker.

The New York-based firm said in a statement issued Friday that it would “contribute its equity in Chrysler automotive to labour and creditors as currency to facilitate the accommodations necessary to affect the restructuring” of the company. The firm also said it would “contractually agree to forgo any profits that could be earned, directly or indirectly, relative to Chrysler as a result of any government-sponsored financing”.

The specific amount of the firm's equity position in Chrysler's automotive operations has not been disclosed and the firm declined to comment. Cerberus, along with German automaker Daimler AG, shouldered at least $2 billion in debt as part of its $7.4 billion acquisition of Chrysler in 2007. The firm also contributed $1 billion into the company for employee benefits.

“Cerberus believes that concessions by all relevant constituencies will be required to facilitate a full restructuring and recapitalisation of Chrysler,” the firm said. “Unless Chrysler’s labour costs can achieve parity with the foreign transplants, and without the restructuring of Chrysler's debt, Chrysler cannot be restored to long-term health and the government loan will be unlikely to be fully repaid.”

Cerberus also will use the “first $2 billion of proceeds” from its financing arm Chrysler Financial to bolster the automotive operations of Chrysler, backstopping a $4 billion bridge loan the US automaker is getting from the government.

The firm, led by Stephen Feinberg, has been under political pressure to contribute its own funds to helping rescue Chrysler. Cerberus explained in the statement Friday that it is limited in how much it can contribute to its ailing portfolio company because of rules governing its investment funds.

“Cerberus is not a deposit-taking institution that can act as an ATM machine for its portfolio companies,” the firm said. “Cerberus does not have the liquidity to fund the loans requested by Chrysler, and … could not do so even if it had such liquidity at its disposal.”

The Bush Administration announced Friday it would extend a $17.4 billion rescue package to struggling Detroit automakers allowing them to avoid filing for bankruptcy protection. The deal would give $13.4 billion in loans to General Motors and $4 billion to Chrysler.

Cerberus has been in negotiations with Daimler to buy out the company’s remaining 19.9 percent stake in Chrysler.