Chrysler Debt Being Unloaded At A Deep Discount

Implications: Several hundred million dollars of loans to Chrysler LLC have been sold off by one of its underwriters at 63 cents on the dollar.

Analysis: The bargain basement sale of several million dollars of Chrysler LLC debt at a big discount underscores the mounting pressure on both the struggling automaker and its bankers since a $7.4 billion deal to take it private last year.

The sale of Chrysler by Daimler AG to Cerberus Capital Management LP was funded in part by a $7 billion dollar term loan that was led by J P Morgan, Bear Sterns, Goldman Sachs, Citi and Morgan Stanley.

But since NOvember, the banks have been struggling to reduce their exposure  to Chrysler, which now faces the prospect of a far weaker U.S. auto market than analysts had expected at the time the Chrysler deal closed.

On Wednesday, several hundred million dollars in Chrysler debt was sold by one of its underwriters to an investor group near 63 cents on the dollar.

The sale price reflects Chrysler's difficulties, the auto industry turmoil and the imbalance of the capital markets, said Chris Donnelly, an analyst at Standard & Poor's leveraged commentary and data unit, a group separate from the ratings service.

The Chrysler loans carried an actual "coupon" interest rate rear 6.71% as of Wednesday. But with the steep discount, the yield on the share of the Chrysler loan that was sold was more than 20%.

In early March, amid a tightening of the global credit markets, the underwriters  tried to place the Chrysler debt near 74 cents on the dollar, sources have said.

Industry-wide U.S. auto sales dropped 12% in March continuing a decline blamed on shaky consumer confidence, high fuel prices and a concern that the housing market downturn could turn into outright recession. Industry sales for the first quarter were down 8%.

The No.3 U.S. automaker has taken a number of steps to accelerate its cost-cutting efforts, including a two-week company-wide shutdown this summer and closing its California design studio.

In a related development, Cerberus has been assembling its resources with a view to buying some banking assets, the New York Post reported.