Wednesday, December 10, 2008

Cerberus is under fire in Congress

Lawmakers: Why doesn't equity firm aid Chrysler?


Members of Congress are turning up the heat on Chrysler's majority owner, Cerberus Capital Management, asking why the global private equity firm doesn't open its books and provide some support to the automaker itself.

"Congress should demand an accounting of Cerberus' assets and why those assets cannot be used to bail out Chrysler Corporation before using taxpayer dollars," U.S. Sen. Chuck Grassley, R-Iowa, said in a letter Tuesday.

Cerberus, a leading New York private equity firm, invested $7.4 billion in August 2007 to acquire 80.1% of Chrysler.

At the time, executives said one of the benefits of being privately held is that Chrysler does not have to make its finances public.

Publicly traded companies, such as General Motors Corp. and Ford Motor Co., must regularly file financial information with federal regulators.

GM and Chrysler warned Congress that their companies are in danger of reaching minimum levels of cash needed to sustain operations.

Chrysler is seeking a $7-billion bridge loan while GM is seeking a $12-billion loan and a $6-billion line of credit.

Congress is crafting a plan that would give GM and Chrysler $15 billion in short-term loans until federal leaders can agree on a long-term course of action.

Senator wants explanation

However, Grassley, the ranking Republican on the Senate Finance Committee, wrote that he would not support giving money to Chrysler until Cerberus does a better job explaining why it cannot help the automaker.

"Due to its private nature, there is no public information about its financial position," Grassley wrote in his letter to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid.

Cerberus responded in a statement by James Olecki that Chrysler has and "will continue to provide Congress with full transparency as to its financials."

The firm said its investors are no different than the shareholders of GM and Ford and noted that in July "Chrysler's shareholders invested an additional $2 billion in the form of loans" to Chrysler.

Cerberus also said that it has promised government officials that it "would contractually agree to forgo any profits that could be earned, directly or indirectly, relative to Chrysler LLC as a result of any financing that the government may choose to provide" and its "investor consortium will accept dilution of their equity interests in Chrysler LLC to facilitate additional necessary concessions."

Grassley noted that Cerberus' Web site lists some of its investments, which include several foreign corporations.

"If Congress does award taxpayer funds to Chrysler, it must ensure that Cerberus and its other investors are not able to access those funds," he wrote.

Grassley also pointed out that Cerberus' investments include 51% ownership of GMAC, GM's financing arm.

A case of double dipping

"As you may know, GMAC recently applied for assistance under the Troubled Assets Relief Program," Grassley said referring to the $700-billion aid package passed earlier this year to help troubled financial institutions. "If Treasury approves GMAC's application for TARP funds, it would seem that Cerberus would be benefiting under both" the bridge loan package and Troubled Asset program.

Rep. Steven Kagen, D-Wis., sent out a similar letter to his colleagues Monday, noting that Cerberus-owned NewPage Corp. recently closed Wisconsin paper mill operations that resulted in job losses and it refused to sell the mills.

Bloomberg columnist Jonathan Weil also called on Cerberus to open its books.

"If a company is so desperate and devoid of dignity that it's willing to beg for a government bailout, the least it should be required to do is disclose its latest financial statements, fully footnoted, independently audited, and sworn to by each of its officers and directors," Weil wrote Tuesday. "It's the only way for taxpayers to know if the mess is as ugly as Chrysler says."

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