Someone Wants To Buy Chrysler Debt?
True story. Market Watch reports that Goldman Sachs has sold $500m worth of Chrysler debt at a discount, reducing its exposure to the troubled firm. The investment house– which underwrote Cerberus' purchase of Chrysler along with JP Morgan, Citigroup, Morgan Stanley and Bear Stearns– sold the loans at the discount price of $.63 (they currently trade between $.64 and $.66). Sources close to the deal (as opposed to those with a faraway look in their eyes) say Goldman Sachs made the sale to an investor group that included hedge funds. Goldman had already sold some $300m of its $1.6b exposure to Cerberus' $7b first-lien loan (used to buy the automaker from DaimlerChrysler). As disconcerting as the fire sale is for Chrysler, it actually signals an improvement. In August and November of last year, underwriters collectively failed to find interest in $2b and $4b chunks of Chrysler debt at any price. The risky debt now returns some 20 percent on investment; which helps investors accept the clear and present danger inherent in holding debt for the struggling American automaker. Good luck with that.
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whatever the rate of return is, it ain't coming from selling cars. somebody is taking a hit to move the debt. maybe somebody figuring they can give it to the FED as collateral for bad loans.
From an article I read earlier, previous attempts to dump Cerberus paper was made at $.90 odd cents on the dollar and at $0.74 to $0.75 cents on the dollar. Apparently, a near 40% discount on the paper made it worth something to somebody. Good luck on that... Bruce
"Ailing home goods retailer Linens 'n Things may file for bankruptcy protection by Tuesday, the Wall Street Journal said on Friday..." "Linens 'n Things, based in New Jersey, was bought out by private equity firm Apollo Management and its affiliates in 2006 for $1.3 billion." http://news.yahoo.com/s/nm/20080411/bs_nm/linensnthings_dc_1 So, it took about two years for that failed private equity buyout to collapse. The analogies are pretty strong. Linens is the weak sister in a competitive market facing lackluster consumer demand. Cerberus did the Chrysler deal in April of last year, so they are one year into this thing now and Chrysler is in even worse shape than it was a year ago. Following the Linens schedule that would put Chrysler into chapter 11 about this time next year. Chapter 7 would be the most logical conclusion of the Chrysler saga. There would be a bidding war for the Jeep brand and the Mexican factory might be interesting to VW, but nothing else has any market value. The once mighty Chrysler minivans are now the fourth best choice on the market after Toyota, Honda and Hyundai/Kia. Perhaps before this is over we will end up seeing a government induced combination of the 2.8 in the spirit of British Leyland. I've been saying for years now that the US auto industry seems to have learned nothing from the decline and fall of the UK based auto industry, and nothing has happened to change the story line yet.
Wow... 50 cents on the dollar is what debt collectors can buy debt for. I'd bet even they won't touch this.