Chrysler Spin Off Put on Hold on Loan Problems

DaimlerChrysler AG's (DCX) $7.4-billion deal to spin off Chrysler hit a speed bump Wednesday when bankers were forced to postpone a $12 billion syndicated loan needed to finance the deal.

DaimlerChrysler and Chrysler's planned buyer, Cerberus Capital Management, both said they were confident that the landmark deal would close as planned in the current quarter.

Market sources also told Reuters Loan Pricing Corp. that underwriters remained committed to providing the needed financing for the deal, which marks the first time that a buyout firm has taken over a major U.S. automaker.

The delay in the sale of the loan and wider pricing for other Chrysler-related loans underscored a new skittishness in the debt markets. It also threatened to complicate pending asset sales that are part of the restructuring of the struggling U.S. auto industry.

"People thought there was an unlimited till of funds that can just flow into the auto industry. The reality is it's a little bit more complex," said Argus Research analyst Kevin Tynan. "I don't think any deals don't get done because of what's going on in the markets ... It's just a bit of a wake-up call."

In addition to the pending Chrysler deal, Ford Motor Co. (F) is shopping around its British luxury brands Jaguar and Land Rover and General Motors Corp. (GM) is looking to complete a sale of its Allison Transmission unit.

DaimlerChrysler Chief Executive Dieter Zetsche told a conference call Wednesday that the sale of Chrysler Group to buyout group Cerberus Capital Managementremained on track.

"As I said before, we are completely within the anticipated time schedule for the closing. We therefore expect that the closing of this transaction will take place in (the third quarter of) 2007 as we indicated all the time," he said.

Zetsche had faced intense pressure from shareholders to unwind the nine-year-old merger between Daimler and Chrysler, especially after the U.S. unit lost $1.4 billion last year and allowed vehicle inventories to balloon.

Cerberus Capital also said it expected the deal to close as planned. "Nothing has changed in terms of the deal closing," said Peter Duda, a spokesman for Cerberus.

Chrysler Group Chief Executive Tom Lasorda, who will lead the fourth-largest automaker in the U.S. market, when it is taken private, said last week that the transaction was "very, very close" to closing and that bankers were committed to providing the needed funding.

Auburn Hills, Michigan-based Chrysler has been preparing for a sale to close as soon as August with plans for a party at its dealerships to mark the automaker's return to U.S. ownership.

On Tuesday, a debt sale to pay for the buyout of General Motors Corp'sAllison Transmission unit was postponed, prompting a widening in spreads for high-yield or junk bonds.

GM had agreed in June to sell its Allison unit for $5.6 billion to private equity firms Carlyle Group and Onex Corp.

The deal was being financed by $3.5-billion in corporate loans and $1.1 billion in junk bonds. The junk bonds have not been offered to investors yet.

Bankers should be able to sell the loans eventually, but the market is so volatile now that loan investors are sidelined, said Vanessa Spiro, a New York-based banking and finance attorney with Jones Day.

"These are good assets, the underlying companies are performing well," she said. "That's why I think this is a lull rather than a crisis of confidence."

DaimlerChrysler shares ended 1.8 percent higher in Europe and its New York-listed shares were 3 percent higher in afternoon trade.