Cerberus Capital Management is partially exiting Chrysler Financial for $6.3 billion in cash to Canada’s TD Bank Group.
The deal is expected to close in the second quarter of 2011. Cerberus will retain ownership of a loan-foreclosure business and insurance unit of Chrysler Financial valued at just under $1 billion, according to a source close to the deal.
During the financial crisis, Cerberus sold its equity stake in the troubled automaker, but retained Chrysler Financial, a unit that included both lending facilities and retail relationships locations across North America. Cerberus acquired Chrysler in 2007.
TD Bank: high hopes for auto loans and leases
“The perception is that they (Cerberus) made substantial investments on the technology side, for managing and sourcing loans. And Chrysler (Financial) represents about 12 (percent) to 15 percent of the US car loan market. That made it an attractive target,” a source close to the deal told PEO.
The Chrysler Financial acquisition will transform the TD Bank Group into the fifth-largest automobile-financing bank in North America, according to company officials. The deal was motivated by the TD Bank Group’s interest in expanding its consumer loan and asset-management businesses, according to TD CEO Ed Clark.
The strength of the Canadian dollar relative to the US dollar of late made the deal especially attractive for the bank.
The deal does not include the issuance of common stock for Cerberus. However, the sale will also infuse the $23 billion private equity group, headed by Stephen Feinberg, with substantial liquidity for new investments in 2011.
TD Bank Group projects that Chrysler Financial can generate a return of 20 percent on invested capital by 2015. Company officials, in a conference call Tuesday, suggested that car loan and leases averages could grow to $20 billion over the next few years. At its height, Chrysler Financial was the third largest auto-loan originator in the US with a $30 billion annual book of loans and leases in 2006. Chrysler Financial’s current loan and lease book was estimated at $7.5 billion, according to the bank.
The 45-year-old Chrysler Financial group, based in Farmington Hills, Michigan, has 1,850 employees in North America and roughly 2,000 dealer relationships.