Chrysler’s bankers fail to sell loans

Chrysler’s bankers failed to sell $4 billion in loans that backed the purchase of the automaker by Cerberus Capital Management, according to investors briefed on the matter, as demand for high-yield, high-risk loans dries up.

The failure marks the second time buyers have rejected the debt from the banks. Chrysler’s lenders were stuck with $10 billion in loans when they were unable to find investors to help finance the August purchase of 80.1% of the automaker from Germany’s Daimler.

Banks for TPG Inc. and Goldman Sachs Group Inc. last week reduced the size of the loans they were selling for the purchase of Alltel Corp. to $3.2 billion, from as much as $6 billion.

“Nobody has any incentive to buy anything,” said Jeffrey Kushner, a managing director at Blue Mountain Capital Management in New York.

The collapse of the sub-prime mortgage market in July and August left banks with $340 billion in loans and bonds for leveraged buyouts that they couldn’t easily sell. In September and October, the credit markets improved and the banks reduced the pipeline to about $250 billion, according to JPMorgan Chase & Co.

JPMorgan, Citigroup Inc., Goldman Sachs, Morgan Stanley and Bear Stearns Cos. revived plans to sell the Chrysler debt earlier this month at 97.5 cents on the dollar, according to people with knowledge of the effort.

Chrysler agreed to repay $3 billion in financing it received at the time of the acquisition, one of the underwriters said, and the banks planned to hold $3 billion on their books.

“The banks must be asking: Do they want some of these transactions on the balance sheet in what may be a softening of the economy?” said Mark Gold, chief executive of HillMark Capital.