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Automobile industry

Duff & Phelps Places Chrysler Debt on Rating Watch - Down Amid Tracinda Offer

Strategic Insights

— 1 min read

Chrysler's financial situation is under scrutiny following Tracinda Corp.'s cash offer for the remaining 90% of outstanding shares, which could lead to significant negative impacts on the company's financial leverage, strategy, and management priorities. Duff & Phelps Credit Rating Co. has placed Chrysler's debt on rating watch - down, reflecting the potential risks to bondholders. With approximately $13 billion of fixed income securities outstanding, Chrysler's $8.4 billion cash balance provides some protection, but significant reductions could jeopardize the company's ability to complete its planned $23 billion of new product spending over the next five years.

Key Takeaways:

  • Duff & Phelps Credit Rating Co. has placed the debt of Chrysler Corporation and Chrysler Financial Corporation on rating watch - down due to Tracinda Corp.'s cash offer for the remaining 90% of outstanding shares.
  • The rating watch reflects the potential for significant negative impacts on Chrysler's financial condition, flexibility, and management priorities.
  • Tracinda Corp. owns about 10% of Chrysler and is the largest stockholder, which has raised concerns about the potential risks to bondholders.
  • Chrysler's $8.4 billion cash balance provides some protection, but significant reductions could jeopardize the company's ability to complete its planned $23 billion of new product spending over the next five years.
  • Chrysler needs to aggressively continue upgrading its drive trains to solidify its product lines and maintain competitiveness with General Motors, Ford, Toyota, and Honda.
  • The company's senior notes and debentures are currently rated "A-" (Single-A-Minus) and its convertible preferred stock is rated "BBB+" (Triple-B-Plus).
  • CFC's senior debt is rated "A-" (Single-A-Minus), senior subordinated debt "BBB+" (Triple-B-Plus), and commercial paper "D-1".

Statistics:

  • Tracinda Corp. owns approximately 10% of Chrysler Corporation.
  • Approximately $13 billion of fixed income securities are outstanding.
  • Chrysler Corporation has a $8.4 billion cash balance at the end of 1994.
  • Chrysler plans to spend $23 billion on new products over the next five years.
  • The rating watch reflects a potential increase in financial leverage of Chrysler's capital structure.
  • Chrysler's new product spending is expected to continue through 1999.

Sources:

  • PRNewswire, "Duff & Phelps Places Chrysler Debt on Rating Watch - Down Amid Tracinda Offer," April 12, 1995.

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