Chrysler's Debt Ratings Placed on FitchAlert Following Takeover Proposal

Strategic Insights -

Chrysler Corp.'s debt ratings were placed on FitchAlert with negative implications after a takeover proposal by Tracinda Corp., an entity controlled by Kirk Kerkorian. The proposal values Chrysler's 415 million shares at $22.8 billion, with Tracinda offering to finance the requirement with a combination of Chrysler's cash, Tracinda equity, and debt. If successful, Tracinda's debt service requirements could drain cash from Chrysler, possibly harming the company's new product programs.

Key Takeaways:

  • Chrysler's "A-" senior debt ratings and Chrysler Financial Corp.'s "F- 1" commercial paper rating were placed on FitchAlert with negative implications.
  • Approximately $22.8 billion is required to finance the takeover proposal, of which $5.5 billion would come from Chrysler's current cash.
  • Tracinda plans to use $10.7 billion of new debt, probably at the Tracinda level, and $3-to-$4 billion of common and preferred shares.
  • The takeover proposal values Chrysler's 415 million shares at $22.8 billion, with $2 billion of this held by Tracinda.
  • Tracinda controlled by Kirk Kerkorian, who currently owns 10% of Chrysler Corp.'s common shares.
  • The proposal aims to unlock shareholder value, with Tracinda proposing to retain Chrysler's current operations and management.
  • Foreign strategic alliances or partnerships are also being considered to maximize Chrysler's global business opportunities.
  • If Tracinda is successful, it could lead to a decline in Chrysler's debt ratings to the "BBB" range.

Statistics:

  • $22.8 billion: the total value of the takeover proposal.
  • $2.3 billion: the amount of Chrysler debt affected by the takeover proposal.
  • $6.1 billion: the amount of Chrysler Financial Corp.'s debt affected by the takeover proposal.
  • $4.3 billion: the amount of Chrysler Financial Corp.'s commercial paper affected by the takeover proposal.
  • $5.5 billion: the amount of Chrysler's current cash used to finance the takeover proposal.
  • $10.7 billion: the amount of new debt used to finance the takeover proposal.
  • $3-to-$4 billion: the amount of common and preferred shares Tracinda plans to use to finance the takeover proposal.

Sources:

  • A copy of the press release from Fitch with a statement from Chrysler's Mary Anne Sudol, CFA, and Chrysler Financial Corp.'s Helene L. Moehlman, CFA.