Bank of America (BAC) Stiffs Chrysler: No More Money For You To Lend

Chrysler Financial fell short on its bid to renew all $30 billion of its short-term debt, missing its mark by $6 billion after Bank of America (BAC) and Caylon, a division of french bank Credit Agricole refused to sign off on the refinancing bid. Chrysler Financial needs the refinancing to lend consumers money to buy Chrysler cars. WSJ:

The refinancing was critical; it amounted to nearly half of the $70 billion in working capital of the finance unit of Chrysler LLC and was used to help fund car leases, retail car loans and loans to dealers called floor-plan loans.

The firm will also be stung by the high cost of funds. When they were raised a year ago the interest rate on different pieces of the $30 billion funding ranged from 0.3 percentage point to half a percentage point above the London interbank offered rate. The $24 billion it raised came in at 1.1 to 2.25 percentage points above Libor, making it harder for Chrysler to offer cars to consumers at attractive terms.

The $6 billion miss compares to the $70 billion in working capital Chrysler uses to finance its loan activities, so while the shortfall does represent a significant problem, it’s not a disaster.

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