Chrysler Deal in a Struggle for Financing

AUBURN HILLS, Mich., July 25 — Bankers have been unable to raise the money needed for the purchase of the Chrysler Group by the private equity firm Cerberus Capital Management, but executives at the automaker’s parent company said on Wednesday that the deal remained on track.

The snag is a result of investor unwillingness to accept the terms for $12 billion in loans and does not jeopardize the deal, a person with direct knowledge of the situation said.

For now, the five banks, led by JPMorgan Chase, plan to take on about $10 billion of the debt and try to sell it later, said this person, who asked not to be identified because the discussions with investors were confidential. Chrysler and Cerberus will carry the other $2 billion.

Chrysler’s financing troubles were among the latest setbacks for private equity firms and banks trying to sell debt used to finance leveraged buyouts.

In another deal on Wednesday, bankers for Kohlberg Kravis Roberts withdrew the sale of £5 billion ($10.3 billion) in loans meant to finance the buyout of Alliance Boots, the British pharmacy chain, a person with knowledge of the matter said. The eight banks involved will keep the debt on their books for now. The banks are still trying to sell an additional £1.75 billion in loans after raising the interest rate.

Executives in the Chrysler deal were confident on Wednesday that the sale would be completed.

“We are completely within the anticipated time schedule for the closing,” said Dieter Zetsche, chief executive of DaimlerChrysler, which has owned Chrysler since 1998.

A Cerberus spokesman, Peter Duda, said, “The transaction will close on schedule,” but declined to comment further. Cerberus agreed in May to pay $7.4 billion for the Chrysler Group and invest $5 billion in the company over five years.

The automaker is expected to proceed with plans to sell loans for its financing division after raising interest rates.

At least 20 debt offerings have been postponed or sweetened as the markets have tightened in recent weeks. Investors have begun to demand better terms for the high-yield loans and bonds at the heart of the leveraged deals.

John Casesa, a longtime auto analyst with the Casesa Shapiro Group, said, “I think the market has to reset, correct and find its proper level.”

The tightening will become a serious problem for Ford and other companies, Mr. Casesa said, if it is accompanied by a weaker economy, such as slower income growth, higher unemployment, higher inflation and lower consumer confidence.

“This puts much more pressure on the management of these companies to execute their operating plan,” Mr. Casesa said, “because they might not have many more financial options.”

Cerberus’s difficulty in finding takers for Chrysler debt is a sharp contrast to the situation carmakers faced until recently.

In March, Ford Motor sold its Aston Martin sports car brand to private investors for $848 million. In November, Ford tried to raise $18 billion to pay for its revamping and found so many interested lenders that it wound up borrowing $23 billion instead.

To be sure, it had attractive collateral. It mortgaged nearly all its domestic assets, including office buildings, patents and even its blue oval logo, and its holdings in Ford Credit and Volvo, the first time in its 103- year history that it had put up its assets in collateral.

Likewise, Cerberus beat out Kolberg Kravis Roberts in April for a 51 percent stake in the financing arm of General Motors, G.M.A.C., and had little trouble syndicating $7.5 billion in loans.

But early this week, G.M. had to postpone a loan sale to pay for the $5.6 billion buyout of its Allison Transmission unit to the Carlyle Group and the Onex Corporation.

“Sentiment changed; it changed on a dime,” said Shelly Lombard, a senior high-yield bond analyst at Gimme Credit. “It’s a 180 from where the market was even six months ago.”

Detroit has always been dependent easy access to credit, and tighter restrictions comes at a difficult time — when many in the industry are revamping or seeking financing to exit bankruptcy.

The situation could spell trouble for investors who snap up Ford’s Land Rover, Jaguar and Volvo brands, analysts said, although Ford has received plenty of interest in the European car companies.

“Plentiful capital is necessary to lubricate Detroit’s restructuring. It’s all that cash that’s enabling deals to get done outside of bankruptcy,” Mr. Casesa said.

Auto companies also could have a more difficult time finding investors to help them fund a special trust to take over their employee health care liability, a topic in contract talks with the United Automobile Workers union that began last week. Analysts estimate they may need as much as $70 billion in cash to start the trust.

William H. Gross, an influential bond fund manager, had predicted recently that Chrysler might have difficulty raising funds because problems in the home mortgage market have made debt investors wary.

“Those that assert that this is merely an isolated subprime crisis should observe very closely the price and terms that lenders are willing to accept with Chrysler finance this week,” Mr. Gross wrote on the Web site of his firm, Pimco. “That more than anything else may wake them, shake them and tell them that their world has suddenly changed.”

Mr. Zetsche, the head of DaimlerChrysler, said Wednesday that profit in the second quarter nearly doubled at Mercedes, to $1.65 billion, but it did not release Chrysler’s performance pending the sale to Cerberus.

Even before the deal is completed, Chrysler has begun removing the Daimler name from some signs at its headquarters here.

Chrysler is expected to bring back the five-pointed star logo that it used before the merger.

“We’re considering it,” a Chrysler spokesman, Mike Aberlich, said.