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The Cerberus Mysteries Deepen

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I don’t mean to alarm you. But I’m getting more and more worried about Cerberus’ role in the auto relief signed last Friday.

First, as plunger noted, Cerberus just suspended the ability of its investors to withdraw from its fund.

Cerberus Capital Management CBS.UL plans to pay 20 percent of year-end withdrawals in cash and suspend the remaining withdrawals for investors in its Cerberus Partners fund, television network CNBC said on Tuesday.

[snip]

We believe it is necessary to suspend withdrawals in part so as to [sic] to unduly increase the illiquidity of the fund for remaining investors and to permit the fund to take advantage of the buying opportunities currently available in this depressed market on a limited basis,

Now, since I’m not an investor in Cerberus, this doesn’t affect me directly. But I am rather troubled that Cerberus took this move just days after the Federal government loaned $4 billion to a Cerberus subsidiary without requiring that Cerberus reveal any of its financial data publicly. Turns out, we all only had to wait a few days to get a sense of their financial status … and it’s not good.

Then, there’s the continued, seemingly universal uncertainty about Cerberus’ role in the loans to Chrysler and GM. 

Press reports are conflicted over the terms that Cerberus agreed to in return for the assistance. While the Wall Street Journal reported over the weekend that Cerberus had agreed to backstop the loan by having Chrysler’s financial services subsidiary pay the government its first $2 billion in earnings or dividends, the New York Times said that guarantee applied only if the subsidiary was sold.

It’s unclear whether Chrysler Financial is currently profitable or pays dividends, since Cerberus hasn’t publicly disclosed such information. Nor has Cerberus said whether Chrysler Financial or any of its assets are for sale. It has also not disclosed who potential buyers for the finance sub might be.

The terms of the government loan, as published on the Treasury Department’s website, specify that Cerberus could make taxpayers whole for losses of up to $2 billion on the facility. But those terms are prefaced with the phrase, “to the extent permissible under existing agreements.”

“What does that mean?” asked William Bratton, a law professor at Georgetown University, who added that the “vague” wording made it sound as if the agreement depended on waivers from Cerberus’ lenders. Read more →

Does Bob Nardelli Work for Cerberus or Chrysler?

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The NYT has caught onto something we’ve been discussing over the weekend: Cerberus is apparently trying to use the bridge loan as a convenient means to ditch Chrysler (pity for Cerberus it’s not in Nebraska, where it could just leave Chrysler at a hospital under that state’s safe haven law). Their story includes a detail that adds to questions I’ve been mulling about Bob Nardelli’s role in all this.

Cerberus officials lobbied the White House last week to prevent the private equity firm from being held responsible for the Chrysler loans if the automaker cannot repay them, according to people with knowledge of the talks who declined to be identified because the discussions were private.

But Chrysler executives, who are responsible for the day-to-day operations of the company, were shut out of the discussions, those people said.

[snip]

A Chrysler spokeswoman, Lori McTavish, declined to comment Sunday on whether Mr. Nardelli had played a role in final loan negotiations with the White House.

I started wondering about which company Nardelli works for last night, when I read this line from Chrysler’s beg to Congress.

Mr. Nardelli receives an annual salary of $1 from Chrysler.

This appeared in a document dated December 2: a few weeks after John Tester had asked Nardelli whether he would be willing to take a $1 salary (Nardelli said he would, with no hesitation, but didn’t say he was getting just $1), but before last week’s loan on which that $1 salary was premised. Given the way that Cerberus’ and Chrysler’s interests appear to be diverging wildly, I started wondering who actually employed Nardelli. Has he always been paid $1 by Chrysler, and $11 million by Cerberus, which would make a bit of sense, since he’s basically been pursuing Cerberus’ goal of repackaging Chrysler so it can be sold off (or, alternately, left in a hospital in Nebraska).

But there is reason to believe that Nardelli is being put in the untenable position of representing Chrysler’s interests while Cerberus works to undermine his efforts. Who can forget, for example, the moment when Bob Corker told Nardelli that Cerberus was unwilling to invest any money in Chrysler. That appeared to be news to Nardelli. And, consider the way that Chrysler’s beg largely consisted of proof that bankruptcy would be the most expensive outcome for the US. Read more →