Cerberus Capital Management LP, the buyout firm that owns Chrysler LLC, plans to hand over equity in the company's automotive operations to workers and creditors as part of its emergency $4-billion loan lifeline from the US government.
Additionally, it intends to use the first $2 billion of proceeds from Chrysler's auto financing arm Chrysler Financial to "backstop" the government loan allocated to its struggling Chrysler car making unit. (See: Bush offers $17.4 billion to bail out GM, Chrysler)
Cerberus bought 80.1 per cent of Chrysler from Daimler AG in 2007 for $7.4 billion, its largest investment (See: DaimlerChrysler, Cerberus complete Chrysler deal). Its investment in Chrysler accounts for about 7.5 per cent of Cerberus's $27 billion in assets under management.
"This is not 'cash in the bank' and Cerberus is not a deposit taking institution that can act as an ATM machine for its portfolio companies," it said in a statement, defending its inability to bail out the automaker on its own. (See: US lawmakers ask majority owner Cerberus to help rescue Chrysler)
''Cerberus believes that concessions by all relevant constituencies will be required to facilitate a full restructuring and recapitalization of Chrysler,'' the New York- based firm said in an e-mailed statement yesterday.
Cerberus will transfer its ownership stake in Chrysler's automotive business as part of the government agreement, which requires the car companies to reduce their debt by two-thirds and to cut expenses. Cerberus's co-investors, who it has declined to name, will also give up their equity in the business. Cerberus declined to give a value for the ownership interests. However, it will retain its equity stake in Chrysler Financial, the automaker's lending arm.
Cerberus cautioned that unless Chrysler's labour costs can achieve parity with the foreign automakers in the US, 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.
Chrysler has been battered by a 28-per cent plunge in US sales through November, the steepest drop among major automakers. It ended the third quarter with $6.1 billion in cash and needs at least $3 billion on hand to operate, CEO Robert Nardelli told Congress on 18 November.
The firm, run by former Drexel Burnham Lambert Inc. banker Stephen Feinberg, has other car troubles. GMAC LLC, the auto and home lender that Cerberus controls, is scrambling to line up more support for a $38 billion debt swap, part of a plan to remain viable by becoming a bank holding company.