The U.S. third largest automaker, Chrysler LLC denied the bankruptcy rumor, speculated by analysts after the automaker exercised a $2 billion line of credit from Cerberus Capital Management LP and Daimler AG. Chrysler drew down a $2 billion credit line late last month from Cerberus and Daimler AG, the German car maker that sold, roughly 80 percent stake in Chrysler to Cerberus.

Cerberus Capital Management LP is a private equity firm that bought Chrysler LLC about a year ago.

Chrysler said it has plenty of cash, while denying the speculation, that Chrysler was planning to file for bankruptcy protection through the credit.

However, Chrysler’s sales were down over 30 percent in June, largely due to heavy lineup in trucks and SUVs. But, the credit deal has nothing to do with current market conditions or liquidity concerns, claimed the officials.

Jim Press, Chrysler co-president and Steven Landry, executive vice president of North American sales said in a letter that addressed to the dealers, “Speculation has surfaced recently in media coverage of analyst reports suggesting Chrysler might have liquidity issues down the road if the U.S. market does not pick up.” The letter further said, “Chrysler has communicated to the media that the suggestion of a possible bankruptcy situation is without merit.”

The company said, the borrowing of $1.5 billion from Daimler and $500 million from Cerberus is not an indication that the company is having cash flow problems. In addition, company’s spokesman, Shawn Morgan commented, “This rumor is false and without merit whatsoever.” He added, “We are categorically denying this.”

According to Lenard Tessler, managing director of Cerberus Capital Management LP, “the loan was not something that was a result of Chrysler having any need for incremental cash based on financial performance of the business.” He said, “The company has exceeded all of its financial targets it set for itself from the day we closed the transaction on Aug. 3. The truth behind the $2 billion is that it was a contractual obligation we had to the company and we were simply meeting our obligation as it came due, and it is reflective of our confidence in the ability of the company to weather the storm and move forward.”

This entry was posted on Monday, July 14th, 2008 at 11:31 am and is filed under Chrysler. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.