[Pen-l] WSJ: Why Cerberus Won’t Put More Money Into Chrysler

[raghu <mraghu01@xxxxxxxxx>]

http://blogs.wsj.com/deals/2008/12/17/why-cerberus-wont-put-more-money-into-chrysler/
--------------------------------snip
At the Senate auto-bailout hearings two weeks ago, bailout-celebrity
Sen. Bob Corker, a Tennessee Republican, aimed his rhetorical guns at
Robert Nardelli, CEO of Chrysler: Couldn't Cerberus Capital
Management, the $27 billion private-equity firm that owns 80% of
Chrysler, simply bail out the auto maker itself without government
funds?

The next day, the House picked up Corker's battle cry as Rep. Ginny
Brown-Wait, a Republican from Florida, asked, "If the private-equity
company that currently has the major holding in Chrysler has $24
billion currently in assets and they will not put forth any more money
to stave off bankruptcy, how can we, in all good conscience, expect
the taxpayers to take on this substantial cost?"

Even weeks later, as the auto makers await word of their fate,
Cerberus has committed to not put any more money in Chrysler. Deal
Journal spoke to a person familiar with the situation to find out what
kind of arguments the investment firm has been making to lawmakers. It
basically breaks down into four categories:

Private equity shouldn't be singled out: Cerberus officials say their
private-equity firm has limited partners that include some of the same
stakeholders as General Motors and Ford Motor: pension funds, retirees
and endowments. "No one is asking General Motors and Ford to pour
their money in, and Cerberus has the same shareholders as they
do—retirees, pension plans and endowments."

Cerberus has invested all it is allowed to in Chrysler: The $27
billion Cerberus manages isn't cash on hand. Cerberus's charter
maintains that the firm can't put more than 5% of its assets into any
one investment; to buy Chrysler in the first place, Cerberus had to
seek permission from its limited partners to bend the rules of the
charter. To inject more money into Chrysler, Cerberus would have to
again seek permission. And the chances are slim that the LPs would
agree to invest–and potentially lose–another batch of money on an auto
maker so close to bankruptcy precipice that it has hired bankruptcy
advisers. Cerberus's LPs know what everyone else knows: that the
financial tsunami of the past few months has wiped even more of the
value from auto makers than would otherwise be the case in an economic
downturn. "The timing of the investment was unfortunate," this person
said, and Cerberus "can't recover."

Cerberus has already put more money behind Chrysler: In June, Cerberus
extended lifeline to Chrysler through a $2 billion loan. Any more
would push the limits of Cerberus's duties as an owner. "Cerberus does
not act like an ATM machine for its portfolio companies," this person
said.

Cerberus is adamant that it isn't "looking to make money" on a
Chrysler bailout: Daimler recently valued its minority Chrysler stake
at zero. Cerberus has told lawmakers it would give up all its
management fees on both Chrysler and GMAC (in which Cerberus bought a
52% stake in 2006) if the auto makers and finance companies get
government money. Cerberus also will allow its equity stake to be
distributed to unions, suppliers, and any other constituencies
involved in Chrysler's restructuring.



-raghu.

--
"I used to do drugs. I still do drugs. But I used to, too." - Mitch Hedberg
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