GM Allison deal financing reportedly hits snag
Wall Street firms postpone sale of $3.1B in loans to be used in purchase of transmission unit, signaling new woes for corporate takeovers, paper reports.
NEW YORK (CNNMoney.com) -- GM's plans to sell its Allison Transmission unit have hit hit a roadblock due to an increasingly difficult market for corporate debt, according to a published report.
The Wall Street Journal reported Tuesday that Wall Street firms postponed a sale of $3.1 billion in loans that would pay for the leveraged buyout of Allison by private-equity firms.
Investors have been shying away from sales of junk bonds and similarly rated corporate loans for several weeks. The paper said the problems raise questions about the prospects of other buyout-related debt financing that need to be completed this summer.
The paper reported the sale of the Speedway, Ind.-based unit to U.S. private equity firm Carlyle Group and Canadian investment firm Onex Corp. is still likely to proceed. But any slowing of financing available for corporate buyouts would be bad news for U.S. stocks, which have seen blue chip indexes such as the Dow Jones industrial average and the S&P 500 hit record highs this summer due partly to the expectations of continued deals.
The paper reported that Citigroup (Charts, Fortune 500), Lehman Brothers Holdings (Charts, Fortune 500) and Merrill Lynch (Charts, Fortune 500) had been planning to sell, or syndicate the $3.1 billion of the loans to be used in the Allison deal to investors around the globe.
The problems with the Allison deal are not the only problem seen in the corporate debt market Monday. The paper reported that online travel agency Expedia (Charts) also drastically scaled back share buyback plans Monday because it couldn't borrow the funds it needed for the buyback at acceptable terms.
A person familiar with the matter told the paper that with Monday's postponed sale of the Allison-deal debt, the Wall Street firms will now try to distribute the loan among a small group of banks. The junk bonds to be used in the deal, meanwhile, hadn't been offered to investors yet, according to the report, which added that the outlook for that sale couldn't immediately be determined.
The troubled automaker started labor talks with the United Auto Workers union Monday, and many are expecting it to propose setting up a union-controlled trust fund to pay for retirees' further health care costs. With GM debt rated as junk bond status, sales such as the Allison deal could be a key to it having the funds necessary to set up such funds if it can convince the union to assume that liability.
The paper reports that the problems with the Allison deal also raised concern over the a $20 billion loan deal planned by private equity firm Cerberus Capital Management that will be uses to buy control of GM rival Chrysler Group from DaimlerChrysler (Charts). Allison is making money, unlike Chrysler, which lost money in 2006 and expected to post losses this year.