The company raised the yield it is willing to pay on a $10 billion term loan for its auto unit to 3.75 percentage points over the London interbank offered rate from 3.25 percentage points it was seeking on June 28. Chrysler is offering Libor plus at least 7 percentage points on a $2 billion second-lien loan, up from 6 percentage points, said three investors, who declined to be named because terms aren't public.
Chrysler's struggle to find lenders reflects a sudden slump in demand from loan investors, who are pushing back against a record amount of debt being sought by lower-rated borrowers. At least 16 companies have been forced to rework or cancel loan or bond offerings. Auburn Hills, Michigan-based Chrysler, being sold by DaimlerChrysler AG, would pay an extra $70 million a year in interest under the new terms.
The ``timing could not be much worse,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan Inc. in Memphis, Tennessee. ``Appetite for lower-rated credits is not too high.''
A spokesman for New York-based investment firm Cerberus, Timothy Price, didn't return a telephone call seeking comment on the financing.
Cerberus is seeking $20 billion of loans to fund the buyout. The remaining $8 billion of loans are in the name of the carmaker's financial services unit. In a leveraged buyout, the buyer borrows most of the purchase price and uses the target company's cash flow to repay lenders.
Bank Meetings
Cerberus agreed to buy 80.1 percent of Chrysler from DaimlerChrysler in May and will invest $7.4 billion in the deal. Stuttgart, Germany-based DaimlerChrysler will hold the remaining 19.9 percent and receive $1.3 billion from Cerberus as part of the transaction.
Banks led by JPMorgan Chase & Co. held meetings with potential lenders on June 28 to sell the Chrysler loans, according to investors who may buy the debt. After failing to find demand, the banks held more meetings today and offered higher rates, the lenders said.
As Chrysler sought to find buyers for its loans, declines in the subprime mortgage market fueled investor concerns about risky assets. Spreads over Libor for U.S. companies rated four or five levels below investment grade widened to 2.72 percentage points from 2.12 percentage points in February. Prices fell to a four- year low in secondary-market trading last week, according to data compiled by Standard & Poor's.
On the Hook
The failure of banks to find financing for buyouts has left them on the hook for more than five takeovers in the past month, data compiled by Bloomberg show. Bear Stearns Cos. strategists estimate that about $290 billion of deals still need to get funded, including Chrysler, and Greenwood Village, Colorado-based credit-card processor First Data Corp. and TXU Corp. of Dallas.
US Foodservice, the food distributor acquired this month by Kohlberg Kravis Roberts & Co. and Clayton Dubilier & Rice Inc., canceled a planned sale of high-yield loans and bonds to fund its buyout after failing to find demand.
Moody's Investors Service rates U.S. Foodservice and Chrysler's automotive division at B3, six levels below investment grade. The financial services unit is ranked two levels higher at B1. S&P ranks both Chrysler units at B, five levels below investment grade.
Chrysler will probably remain unprofitable until into 2009, S&P said on July 2. The company's revenue fell 18 percent in the first quarter on an 8 percent decline in unit shipments, S&P said. The company's U.S. market share fell to about 12.9 percent last year from 13.5 percent in 2005, Moody's said.
Higher Than Ford
The Chrysler auto unit will have to pay higher interest rates than its competitor Ford Motor Co. Dearborn, Michigan-based Ford, the second-biggest U.S. automaker, is paying Libor plus 3 percentage points on a $7 billion term loan obtained in December.
Chrysler's financial services unit is seeking a $4 billion term loan, a $2 billion revolving credit and a $2 billion second- lien loan.
The finance division wants to pay Libor plus 2.75 percentage points on the $4 billion term loan and revolving credit, and Libor plus 5 percentage points on the second-lien loan, according to the investors. The second-lien loan will rank behind the $4 billion term loan and revolving credit for repayment in the event of a bankruptcy.
Three-month Libor, used as a borrowing benchmark in the loan market, is currently 5.36 percent. In a revolving credit facility, money can be borrowed again once it's repaid; in a term loan, it can't.
