Investment banks trying to raise money for Cerberus Capital Management’s planned buyout of Chrysler Group have postponed a $12 billion debt offer due to lack of investor interest, according to the Associated Press.
As a result, the banks plan to shoulder most of the debt burden themselves to prevent the deal from skidding off the road, according to the report.
The lead banks include Goldman Sachs Group Inc. and JPMorgan Chase & Co., which will fund the bulk of about $10 billion of the deal, according to the AP, citing people familiar with the deal. Other banks will kick in smaller sums, including Citigroup Inc., Morgan Stanley, Bear Stearns Cos., Toronto-Dominion Bank, and the Royal Bank of Canada.
Cerberus and the embattled carmaker will fund the remaining $2 billion, according to the report. The AP stressed that the banks will take a second-lien position behind Cerberus and Daimler, Chrysler’s current parent, which means that the buyout firm and the automaker have first dibs on cash if there is a default.
The funding crisis was spawned by the collapse in the sub-prime mortgage lending market.
In recent weeks, a number of private equity deals have been put on hold or restructured when the deal sponsor was unable to raise the necessary funds as investors have grown luke-warm to high yield bonds and loans.
According to Bloomberg, nearly 40 companies have revised or dropped deals in the past three weeks.
In fact, also on Wednesday, banks halted the sale of $10 billion of loans for Kohlberg Kravis Roberts & Co.’s buyout of Alliance Boots Plc, according to Bloomberg.
“People have basically put the ‘Closed for Business’ sign out,” Shelly Lombard, an analyst at bond-research firm Gimme Credit Publications, told the wire service. “You never know what’s going to make it switch, but investors turn that switch off so fast.”
However, according to the AP, Cerberus’ deal to buy 80 percent of Chrysler is still on track to close over the next few days.