Chrysler debt unloaded at deep discount

DETROIT (Reuters) - Several hundred million dollars of loans to Chrysler LLC have been sold off by one of its underwriters at a deep discount, reflecting 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 (DAIGn.DE: Quote, Profile, Research) to Cerberus Capital Management was funded in part by a $7-billion term loan that was led by J.P. Morgan, Bear Stearns, 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.

Chrysler, which lost $1.6 billion last year, no longer discloses financial data as a private company, making the more than 20 percent yield on its debt in the secondary markets one of the few available measuring sticks for its performance.

Chrysler and Cerberus had no immediate comment.

On Wednesday, several hundred millions of dollars in Chrysler Corp debt was sold by one of the underwriters to an investor group near 61 cents, sources told Reuters LPC.

The sale price reflects Chrysler's difficulties, the auto industry turmoil and the imbalances 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 that tracks leveraged finance markets.

"What it says about Chrysler is that the market is interpreting the company's debt as reasonably impaired and it also acknowledges that there is a tremendous technical imbalance in the debt capital markets," Donnelly said. "There is far more of this paper than anybody wants."

The Chrysler loan carries a coupon set 4 percentage points above 3-month LIBOR, or near 6.71 percent as of Wednesday. With the steep discount, the yield on the share of the Chrysler loan that sold was more than 20 percent.

In November, Chrysler's underwriting syndicate had looked to unload about $4 billion in loans and had been seeking to sell the loans at closer to 97 cents on the dollar at that time.

In early March, amid a tightening of the global credit markets, the underwriters again tried to place Chrysler debt near 74 cents to 76 cents on the dollar, sources have said.

Industry-wide U.S. auto sales dropped 12 percent 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 percent.

Chrysler's sales for the first three months of the year were down 14 percent from a year earlier.

The No. 3 U.S. automaker has taken a number of steps to accelerate its cost-cutting efforts under Chief Executive Bob Nardelli in the past several months.

Those include steps to mandate a two-week company-wide shutdown this summer, restrict the number of employee discounts on new vehicles and close its California design studio.

The United Auto Workers union has indicated Chrysler is likely to fall short of its target of cutting up to 10,000 factory jobs through buyouts currently on offer.

The company has also detailed plans to thin its truck-heavy product line-up, boost overseas sales and reduce the number of U.S. dealerships that represent its Chrysler, Jeep and Dodge brands.

(Reporting by Reuters Loan Pricing Corp, Kevin Krolicki, David Bailey)