Two banking giants are in negotiations to purchase Chrysler Financial Corp., the auto lender owned by Cerberus Capital Management LP, according a person close to the matter. A deal valued at several billion dollars could be reached in the next few weeks, though there is no assurance the talks will lead to a sale.
ING Group and Toronto-Dominion Bank are among several parties in talks with Cerberus to purchase Chrysler Financial. Toronto-Dominion's interest first was reported by Bloomberg.
Cerberus likely will retain assets of Chrysler Financial as part of any deal, reducing the size of any transaction, according to someone familiar with the matter. The buyout firm was approached by several parties in recent weeks about a purchase of Chrysler Financial, sparking the current negotiations, reported The Wall Street Journal.
Still, a sale would be a big turnaround for the leveraged-buyout giant. In May 2007, Cerberus spent $7.4 billion to buy more than 80% of Chrysler Holding LLC, part of a huge bet on the auto industry by the $23.5 billion firm that included the earlier acquisition of GMAC LLC. About $1.3 billion of the original $7.4 billion purchase price for Chrysler came from Cerberus.
The economic downturn crippled Chrysler's sales; Cerberus relinquished ownership as part of the Treasury Department's move to take over the auto giant, though Cerberus retained Chrysler Financial, the company's finance arm. (Chrysler filed for bankruptcy protection early last year and later was sold to a group including Fiat SpA.)
Chrysler Financial, which no longer is affiliated with the auto maker whose name it bears, has seen improved performance recently, as the value of its car and truck loans rises in value.
Unlike mortgage loans and other consumer debt, auto loans haven't seen big defaults over the past two years, and the value of used automobiles has held up. The rally in the credit markets has made Chrysler Financial's loans more valuable to investors, while the Federal Reserve's efforts to push down borrowing rates have made the auto-loan business more attractive to lenders.
Chrysler Financial has $2.2 billion of cash and more than $5 billion of liquid investments. Chrysler Financial is winding down its loans to the auto maker but has announced plans to begin lending to midsize companies.
If the current talks lead to a deal, it likely will enable Cerberus to sharply cut its losses from the Chrysler transaction, though any deal is unlikely to be valued at more than the $7.4 billion that Cerberus and its co-investors originally spent.
