Banks sell $6bn of Chrysler debt(2)

The JP Morgan-led group of banks that underwrote $10 billion of debt related to Cerberus’ acquisition of Chrysler has sold $6 billion of the debt at 95 percent of par.

A group of banks, led by JP Morgan, has sold $6 billion (€4.3 billion) of debt related to the sale of Chrysler to Cerberus Capital Management, according to a report by UK Newspaper The Financial Times.

The report said that Bear Stearns, Citigroup, Goldman Sachs, JP Morgan Chase and Morgan Stanley have managed to sell $6 billion of the debt at 95 cents on the dollar, after raising rates by around 125 basis points. The sale, which closed today, is composed of two parts: a $4 billion, five-year tranche with an interest rate of 9.36 percent, and a $2 billion, six-year tranche with an interest rate of 11.86 percent.

The banks have been trying to sell the debt package since June, but have had to shelve the syndication because of problems in the credit markets.

Cerberus had agreed to buy Chrysler, an automobile manufacturer, for $7.4 billion in May. The distressed private equity specialist also agreed to assume Chrysler’s healthcare and pension obligations, which are valued at over $10 billion.

Investors initially balked at the $12 billion loan package associated with the deal, reflecting deep unease in the credit markets over subprime mortgage fears. A senior figure in the debt market told PrivateEquityOnline at the time that investors hesitated because previous deals sold at a discount had begun trading at a lower price as soon as they came to market.

Chrysler and Cerberus have agreed to shoulder $2 billion of the debt, leaving $4 billion of debt still to be syndicated.

The underwriters of another high profile buyout, Kohlberg Kravis Roberts’ £11.1 billion ($22.7 billion, €16.4 billion) acquisition of Alliance Boots, have also had difficulty syndicating that deal’s debt package. JP Morgan, Deutsche Bank and Unicredit have shelved the syndication of the £1 billion second lien tranche indefinitely. In late July, the banks also suspended syndication of £5.05 billion of senior debt. The banks, however, did reportedly manage to sell £750 million of mezzanine debt at 95 percent of par.