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Cerberus offers to forfeit Chrysler equity

In brighter times, Cerberus Capital Management LP hoped to save Chrysler LLC, which it called an American automotive icon. Now the private-equity firm is offering its entire equity stake in the automaker to labor and creditors to help Chrysler secure its $4 billion portion of a federal loan package.
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Cerberus said it was making the offer to help Chrysler "make the accommodations necessary to affect the restructuring" of the company. Under the federal loan announced Friday by President George W. Bush, Chrysler needs to swap equity for debt to reduce its debt load and to fund half of its obligation to the UAW Voluntary Employee Beneficiary Association trust with stock.

Cerberus also announced that its Chrysler Financial unit would offer $2 billion to backstop the federal loan, which Chrysler must repay at the end of the first quarter. Cerberus acquired 80.1 percent of Chrysler from Daimler AG for $7.4 billion in 2007.

"Cerberus is really focusing on the lending side of the automobile industry," said Lars Luedeman, head of auto analysis, referring to Cerberus's stake in Chrysler Financial and GMAC, "They're effectively offering up the automotive side of the operation."

Craig Fitzgerald, analyst for Plante & Moran, said Chrysler's best hope for the future lies with finding a partner or partners "that will cause some of their brands and products to be moved over to competitors."

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Cerberus's move to give up its equity stake could help the restructuring, said Kimberly Rodriguez, also with Grant Thornton.

"It's really a pre-packaged bankruptcy without the pre-pack where equity is no longer in control," she said. "It's a cooperative way of handing over your position in a company to help it see another day. It's an industry-supportive move by Cerberus, which is more beneficial to the other OEMs."

The offer came two weeks after Cerberus had been lambasted in congressional hearings. Sen. Bob Corker, R-Tenn., asked Chrysler CEO Bob Nardelli why taxpayers should fund a Chrysler bailout when Cerberus refused to put any more money in it.

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In a statement today, Cerberus responded to that criticism. The company said it manages and allocates capital on behalf of its investors -- including "retirees, teachers, municipal workers and ordinary citizens'' -- and its charter limits how much it can put in any single investment.

Said the statement: "Cerberus is not a deposit-taking institution that can act as an ATM machine for its portfolio companies."