Haircut Time!!! Chrysler Debt Deal Gives Investor Group 20% Yield

On the consumer side, we’re all used to seeing financing rates like 0% or 2.9% interest loans. But what about 20%? That’s what the effective rate on some Chrysler loans that were sold by an underwriter to an investor group for 61 cents on the dollar. Holy lack of confidence Batman! The actual coupon interest rate of the loans was 6.71% but the 61 pennies on the dollar buy price raised that yield into “I didn’t pay all my bills on time during my college years” zone. Because Chrysler is now privately held, the performance of its loans in the secondary market is one of the few glimpses into the company’s current situation.

Given the overall shakiness of the market and what must undoubtedly be a strong desire to see are return on its investment, I can’t help but wonder if Cerberus would start shopping around Chrysler LLC’s strongest asset: the Jeep brand. Just as Jeep was AMC’s ace many years ago, the branding opportunities for an Indian or Chinese manufacturer would be phenomenal.

Selling Jeep and then chopping up the remaining assets to be fed to the highest bidder might be one way that Cerberus makes money on this deal. I’m not necessarily advocating this strategy, but Chrysler has been saved by the bell so many times in the past with miraculous, “just what the doctor ordered” products, at some point its fortunes are going to run out.

I hope I’m wrong.

source: reuters