Borrowing Costs Rising in Chrysler, Other Buyout Deals

Media reports say the interest rates on loans for buyout deals are rising as investors are demanding higher rates to offset risk. Steven Miller of S&P says the Chrysler/Cerberus LBO and other deals will be re-priced and adjusted to accommodate debt investors. But there's no major liquidity crisis looming, he adds, since corporate debt defaults are at record lows. Lead underwriters of deals are incurring costs from carrying expensive bridge loans on their books used in financing LBOs. An estimated $290 billion of takeover deals still need financing, including Chrysler, First Data Corp. and TXU Corp., according to Bear Stearns strategists. The balance of power is shifting to investors, meaning the size of future buyout deals will likely be limited. As for Chrysler, Bloomberg reports it will face an extra $70m of interest payments annually under new higher-yield debt payment terms. Shares of DaimlerChrysler fell 0.8% to $94.17 on Tuesday.

Sources: Bloomberg, FT.com, MarketWatch
Commentary: Cerberus Capital To Buy 80% Chrysler Stake for $7.4 Billion; Shares Climb • Big Three Automakers Lose Ground to Japanese in June • Chrysler Aligns With China's Chery Automobile
Stocks/ETFs to watch: DaimlerChrysler (DCX), First Data Corp. (FDC), TXU Corp. (TXU)
Earnings call transcripts: DaimlerChrysler Q1 2007

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