Chrysler financing falls $6bn short

Chrysler Financial, the lender Cerberus purchased alongside its corresponding auto unit last July, fell $6bn short of its $30bn target while renewing its credit facilities. The lender’s credit rating was reduced to B- last week on news of the company exiting consumer leasing.

Cerberus Capital Management-owned Chrysler Financial has completed the renewal of $24 billion (€15.4 billion) in credit facilities, falling short of the $30 billion originally sought.

The struggling lending unit of US automaker Chrysler, also owned by Cerberus, reduced the amount required as the result of “conditions in the credit markets and changes in the company’s retail strategy”, the company said in a statement.

Of the banks participating in the original conduit, 10 percent did not participate in the renewal. Citi, JPMorgan and the Royal Bank of Scotland led the syndication of the loan facilities.

“This debt is low risk and lucratively priced from a return point of view; yet, a number of banks backed out and a number only participated after getting their arms twisted,” Michael Weinstock, managing principal of distressed investor Monarch Alternative Capital told PEO.

The $6 billion shortfall indicates the high level of concern banks have in regards to both the auto industry and consumer lending, said Weinstock.

Chrysler Financial offers wholesale and retail financing to both dealers and consumers of Chrysler, Jeep and Dodge vehicles in the US, Canada, Mexico and Venezuela.

US ratings agency Fitch Rating downgraded Chrysler Financial’s issuer default rating to B- from B+ last week with a rating outlook of negative. The downgrade affected approximately $8 billion of debt.

Fitch’s downgrade was largely the result of the company’s decision to exit consumer leasing prompted by the decline of residual values, particularly on trucks and sports utility vehicles. Auto unit Chrysler was downgraded to CCC from B- based on restricted access to financing.

Chrysler Financial’s decision to stop leasing cars combined with reduced car sales means that the $24 billion credit facility will likely meet the firm’s needs for the coming year, said Weinstock.

Cerberus acquired Detroit-based Chrysler, the ailing US arm of German car-maker DaimlerChrysler, for $7.4 billion in July 2007. Cerberus’ bid beat out Canadian auto-parts supplier Magna International, as well as a consortium including US buyout firms The Blackstone Group and Centerbridge Capital Partners.

Cerberus took an 80.1 percent stake in Chrysler Holding, while DaimlerChrysler retained a minority investment of 19.9 percent. As part of the deal, Cerberus took on pensions and healthcare obligations valued at more than $10 billion.

The first signs of trouble for Chrysler appeared quickly as the credit market dislocation began to take hold. A JPMorgan-led group of banks opted to absorb $10 billion of loans pertaining to the sale in order to try and sell them at a later date after unsuccessfully attempting to sell the loans. Cerberus and Daimler shouldered the remaining $2 billion of loans.

The banks sold $6 billion of the debt in August at 95 percent of par.

Chrysler Financial’s first lien debt currently trades at approximately 80 percent of par and the auto unit’s first lien debt is trading in the low 40’s, said Weinstock.

The fate of the Chrysler deal has remained under intense scrutiny since its execution, as the US automotive market continues to shrink amid record oil prices, declining consumer spending and a weakening economy.