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Chrysler Financial has set pricing for its USD 8bn loan package, but terms on Chrysler Automotive’s USD 12bn deal remain contentious, according to buysiders. Commitments on both loans are due today.
“Everyone is focusing on this [Chrysler Automotive] deal because it is the index of the market right now. If it fails there will be trouble for both buyside and sellside, it will stir a second round of sell-offs. If the sell-off happens, Ford won’t trade well [and it will impact GM]. There is a mutual interest now to get the deal done,” said the one buysider and three additional buysiders.
Should the manufacturing unit be forced to pay a significantly higher interest rate on its loans than proposed, it might opt to pare down the deal instead, said several buysiders. Prospective acquirer Cerberus Capital Management could cut the size closer to the USD 8bn Chrysler Financial, transaction said two of the buysiders. The financing will be applied to Chrysler Automotive’s cash balance but the company doesn’t need such a large sum, they said.
The lending unit’s USD 6bn first lien pricing is Libor +300bps – up from Libor +275bps – with an OID of 99.5 while the USD 2bn second lien is at Libor +550bps with an OID of 99, according to the four buysiders.
“I expect [books] will get filled by the end of day tomorrow,” said a second of the buysiders.
The managers for the loans – JPMorgan, Morgan Stanley, Citigroup and Bear Stearns – held a call earlier this week to discuss pricing on Chrysler Financial loans. Early guidance out of the call was Libor +275bps on the first lien and Libor +550bps on the second, according to two of the buysiders. JPMorgan, Morgan Stanley, Citigroup and Bear Stearns all declined to comment.
Meanwhile, Chrysler Automotive’s loan package continues to face pricing and structural pushback as well as some technical resistance, said the buysiders. The issuer flexed pricing higher on the deal yesterday but some potential investors say they’d need a better risk/reward to participate.
Pricing on the USD 10bn first lien increased to Libor +375bps from Libor +325bps and the second lien bumped up to Libor +700bps from Libor +650bps, as previously reported. The spread is adequate, but only if Chrysler’s acquirer, Cerberus Capital Management, agrees to insert leverage and/or minimum EBITDA covenants into the deal, according to three of the buysiders.
In contrast, investors queried by Debtwire said that that the proposed pricing of the second lien tranche still doesn’t compensate them for the loan’s weaker collateral package. Pricing on the USD 2bn second lien should be closer to Libor +800bps, said the three buysiders.
“There’s no security there,” said one market participant after a conference call yesterday to announce the pricing flex. “Nothing I heard [on the call] changes my mind on that either,” said one of the three buysiders.
Based on the USD 1.98bn FY06 EBITDA Chrysler Automotive reported in a presentation last month, the company would be 5x levered through its first lien loan and 6x levered through the seconds.
Terms aside, some investors expressed reluctance to place large orders for the new loans because of downside secondary market risk. As a result, loan buyers may commit to some of their preferred allocation now and pick up the balance on the cheap if it trades below the OID as expected, said the three buysiders.
“You don’t want to be the first one in most of the time. There’s a lot of volatility in the market right now and getting it below the OID is a very strong possibility,” said one of the three buysiders.
Aside from changing the deal’s structure, Cerberus could cut the size closer to the USD 8bn amount for Chrysler Financial, said two of the buysiders, who agree that having the cash on the books is a good thing to ensure the long-term strength of the automaker, Chrysler doesn’t need that much money to move forward, said the two.
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