Signs – Cerberus May Have Trouble Raising Capital For Chrysler

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Comments: 0

October 20, 2007

Since the purchase of Chrysler by the private equity firm Cerberus Capital Management I have been very skeptical of the future of this car company as well as private equity in automotive.

Cerberus purchased approximately 80% of Chrysler from DaimlerChrysler for $7 Billion. This upfront investment was to provide the necessary capital to continue operations of the new Chrysler LLC. Historical financial statements indicate, Chrysler maintain about $7 billion on hand at all times to purchase parts and keep the plants operational to manufacture their current line of vehicles. This did not include money for major investment in new product, new plants or any money to invest in the future of Chrysler.

In August, as the sale was concluding, Cerberus had problems financing the deal and Daimler had to cover the last billion dollars of the transaction. This was a direct result of the tightening credit markets at the time. Also, Cerberus was also trying to set up a $50 billion line of credit. This seems to have not happened.

Since Chrysler is now private, the transparency to the public is all but zero. Being private, Cerberus will not be required to provide any financial guidance.

Personally, I see the credit markets being a huge problem for Cerberus today as they may have significant problems raising capital to restructure the financing of Chrysler’s turn-around.

For this reason, I believe Cerberus will have to sell assets to raise capital to fund Chrysler. This could very well be the only public indication that Cerberus is having difficulty raising cash and a warning they are learning the problems at Chrysler are more significant then they planned for when agreeing to the deal with Daimler.

I just learned yesterday Cerberus is planning on selling GDX Automotive. I found this alarming as I had this article in draft prior to seeing this news and I have just rushed to publish this. I believe this is the first indication the credit crunch is impairing Cerberus’s ability to raise money and will have to sell off more assets to raise money. At this time Chrysler does not have the ability to generate enough cash flow to survive based upon recent financial results when part of Daimler. Without a line of credit this may be Cerberus’ only option. For this and many other reasons, I have serious concerns about the future of Chrysler.

 

 

Below is a list of Cerberus investments from its website to keep an eye on.

ACE Aviation Holdings

AerCap Aviation Solutions

Annexus

Aozora Bank Ltd.

ATC Group Services, Inc.

Bank Leumi

BAWAG P.S.K.

Blue Bird

BlueLinx

boxclever

Chrysler

CTA Acoustics

GMAC Financial Services

Green Tree

GSW Berlin GmbH

Guilford Mills

Handel-Kredit Bankhaus

IAP Worldwide Services

Inovis

Kokusai Kogyo KK

LNR Property Corporation

NewPage Corporation

North American Bus Industries

NewPage Corporation

Peguform Group

Rafaella Apparel Group

Scottish RE

Showa Jisho Co. Ltd.

SLI Holdings Inc.

Spyglass Entertainment

Strategic Restaurant Acquisition Group

Talecris Biotherapeutics

Tandem Staffing Solutions, Inc.

Torex Retail Holdings Limited

TTL Equipment Management

 

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