Cerberus Plagued By Horrible Investments in Chrysler and Mervyn's

Elusive yet powerful hedge fund Cerberus Capital Management is facing new problems from its subsidiary Chrysler, whose financing arm is struggling to renew a $30 billion credit facility.

WSJ: Chrysler LLC is running into heavy new headwinds, this time from its financing arm, Chrysler Financial.

The financing arm is likely to see its borrowing costs rise in early August when it rolls over about $30 billion of short-term debt backed by the loans and leases it makes. That, in turn, will make it harder for the company to offer low-interest loans to buyers and for dealers to hold inventory.

Bankers, led by J.P. Morgan Chase & Co., are pushing hard to persuade more than 20 banks to renew the $30 billion credit facility — backed by car loans, leases and loans to dealers — that was issued by the auto-finance company last year when it was carved out of the former DaimlerChrysler AG. The debt represents a sizable chunk of Chrysler Financial’s $70 billion portfolio in working capital. The higher financing costs could further complicate the attempt by private-equity firm Cerberus Capital Management LP to turn around the auto maker.

Meanwhile, a department store chain in which Cerberus also has a stake is facing its own credit problems, which could cause the store to file for bankruptcy:

New York Post: Problems are mounting for Mervyn’s, a California-based department-store chain part-owned by Cerberus Capital Management…

Mervyn’s has been hard-hit by the housing crisis across the Southwest, where it operates 175 stores.

Fearing that a bankruptcy is looming, big suppliers, including Levi Strauss, have stopped shipping merchandise to Mervyn’s in recent weeks, sources told The Post…

[T]he pullout by Levi Strauss and others has convinced some insiders that the company will file for bankruptcy within 30 days.


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