Sunday, December 26, 2010

Cerberus and Chrysler

I worked on a deal with Cerberus and posted about their 
acquisition of Chysler and wondered what 
incongruity they had discovered. Well it was not their 
best deal however they did not lose.

Aivars Lode

The Term Sheet by Dan Primack
Tuesday -- December 21, 2010

Random Ramblings
If you do a Google search for Cerberus and Chrysler, your top 
result will be a Forbes story whose header is: “A firm notorious
for its secrecy gets a very public black eye.”
My guess is that might soon change a bit...
Cerberus this morning announced that it has agreed to sell
Chrysler Financial to TD Bank for $6.3 billion. From a return 
perspective, this means that Cerberus actually is nearing 
break-even on its original investment. Here’s how it works out:
Cerberus led a $7.4 billion acquisition of Chrysler from Daimler 
in 2007, which included both Chrysler’s auto-making and auto-finance
units. The private equity firm’s actual investment was $1.3 billion, with
the remainder coming from co-investors and lenders. For context, 
it was the firm’s largest-ever check.
Chrysler’s auto-making unit went bust last year, with Cerberus 
contributing its equity to the government-backed bankruptcy. 
But Cerberus held on to Chrysler Finance, which has since 
benefited from such macro as increases in car resale values 
(CRVs). Now it’s selling the unit to TD Bank for $6.3 billion in cash.
That would still put the overall buyout underwater by $1.1 billion, 
except that Cerberus actually isn’t selling all of Chrysler Financial. 
Instead, it’s holding onto select assets – including a unit set up to 
do foreclosures and one related to insurance (seems TD wanted
to get the deal done fast, rather than wait to figure out additional 
dispositions). My understanding is that Cerberus values those 
excluded assets at approximately $940 million.
As such, the total cash-on-cash loss appears to be less than 
1% of the deal's original value. Still a lousy deal, to be sure, 
but not anything close to the disaster that most folks had
assumed it to be…

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