By Richard Milne in Frankfurt and John Reed in London
May 15 2007 20:47 | Last updated: May 16 2007 01:19
SourceCerberus will be able to draw on $17bn as it battles to turn round Chrysler, the US carmaker it bought on Monday for $7.4bn, after raising the biggest financing package yet for a private equity deal.
A group of five banks has committed more than $60bn in financing for the US private equity firm. About $50bn of that will be needed to refinance assets that will constitute Chrysler’s financial services arm, Chrysler Financial Services.
But $12bn will be available as an undrawn credit line for the operating business of Chrysler, plus the $5bn Cerberus has pledged to put on the balance sheet, a banker involved in the transaction said on Tuesday.
The carmaker could draw on this money to secure agreement on healthcare liabilities. People involved in the financing say a Cerberus-backed Chrysler, which has $17.5bn in almost totally unfunded liabilities, may try to strike a healthcare with the United Auto Workers union similar to one at Goodyear, the tyre company. There, the liability was set and agreed and the company provided a sum of money to settle it for ever.
Cerberus’s purchase of Chrysler represents one of the biggest bets by the private equity industry, with Cerberus putting $6.1bn into the business.
The financing package is also a noteworthy backing of the troubled US motor industry by the banks. JPMorgan advised Daimler on the deal. It also took part in the financing team for Cerberus alongside Goldman Sachs, Citigroup, Morgan Stanley and Bear Stearns.
The $50bn in debt for Chrysler Finance will be backed by $76bn in assets and in essence replaces the debt that Daimler currently holds in the business.
Although Chrysler’s separation from DaimlerChrysler will not be consummated for two to three months, Cerberus is already putting its stamp on carmaker.
Stephen Feinberg, the private-equity group’s founder and chief executive, accompanied by Wolfgang Bernard, the former Volkswagen chief executive hired by Cerberus as an adviser on the deal, met union officials and senior managers at the Detroit headquarters.
Tom LaSorda, Chrysler’s chief executive, described Mr Feinberg as a “grassroots, blue-collar guy” and dismissed speculation Chrysler might spin off one or more of its vehicle divisions.
“These brands are staying together,” Mr LaSorda said. “They will not be broken up under any circumstances.”
Mr Bernhard would not join Chrysler’s executive team, but would be available as an adviser when needed.
Meanwhile, Buzz Hargrove, head of the Canadian Auto Workers union, who had expressed strong reservations about the sale earlier this week, took a more upbeat view on Tuesday after receiving a written assurance that union members’ jobs would beprotected.
Copyright The Financial Times Limited 2007