TTAC has been working with our Best and Brightest to uncover the hidden investors behind Chrysler. We’ve made some headway. First, the name of Cerberus’ Chrysler funds: Cerberus CG Investor I LLC, Cerberus CG Investor II LLC, Cerberus CG Investor III LLC. The information came from Daimler [click here then search for “CG Investor”; it’s under structure of the transaction]. Searching for hits on the CG funds, we’ve unearthed Franklin Templeton Investments’ Mutual Recovery Fund. Here’s the money shot: the fund’s 2008 Annual Report. Scroll down to page 5 (their numbering), second footnote. And there it is. And now we can drill down to some interesting info…
Scroll down to page 24 (of the document itself). The Cerberus CG Investor funds (I – III) are listed under “Consumer Finance.” Why? As far as we know, these CG funds did NOT include investments in Chrysler Financial and/or GMAC.
And here’s something else that’s curious. Scroll down to the bottom of page 27 (their numbering). Those same amounts are listed as “Corporate Bonds and Notes.” It appears that Cerberus has agreed to pay Franklin Templeton 12 percent on this investment on 7/31/14.
I leave it to our Best and Brightest to further interpret/explain (please!) the implications of this data. Meanwhile, another hit, in my backyard no less: the Factory Mutual Insurance Company of Johnston, RI. Search within the document for “Cerberus.” It appears pals at Morgan Stanley (another thread revealed) sold Factory Mutual $1.6m worth of CG goodness.
Here’s another one: York Enhanced Strategies Fund, LLC. They own $12m of “Cerberus CG Investor, LLC”, as seen on a SEC form N-Q filing.
The information raises some interesting questions. Well, lots. How was the original deal structured? Why are there three separate funds? Were these investors co-investors in the original Chrysler purchase, or “general” investors in Cerberus assuming risk? How much Chrysler-related paper does Cerberus own? Who owns the majority?
Thanks to Phil Turland and Brian E for the detective work. A quick email from Cerberus (robertfarago1@gmail.com) to clarify these issues would be most appreciated.
TTAC makes the WSJ look like TV Guide.
Aha. Here are the SEC filings of all three funds:
Cerberus CG Investor I LLC
Cerberus CG Investor II LLC
Cerberus CG Investor III LLC
These do not show individual owners, but they give a state-by-state breakdown. Interestingly CG Investor I and II appear to be structured identically (totaling $950,000,000), while III is half the size of the other two ($475,000,000). The number of investors is identical for all three, and the investment amounts per state are the same for I and II and half that for III. In other words, investors wanting to own a chunk of Chrysler buy in to I, II, and III in a 40%/40%/20% ratio.
Now it’s just a matter of putting names to the numbers. We can start with the easy ones: Arizona, Michigan, and Texas have one investor each.
Can you tell me how this differs from any other corporate bond investment, or any other large corporate capital fund investment? And what is the significance of the investors named so far?
Aren’t investors free to invest in whatever they please and funds free to sell their wares as long as they follow the SEC rules? All I can gather from this (so far) is that there were some people dumb enough to invest in CG funds? Please enlighten us to the point of all this detective work in your next update, thanks!
Aha, that’s why my comments disappeared! Grab away.
Here’s another one for you: EQ Advisors Trust, which according to this article is the investment vehicle for variable annuity products offered by Equitable Life Assurance of the US. In 2004 Equitable was purchased by a French insurance group called AXA. The combined company has a talking gorilla on its web page. No, really.
More seriously, CG Investor shows up as a long-term debt security on their SEC filing. It appears that Cerberus has agreed to pay out 12% by 7/31/12. Now we know how they lined up investors.
Interesting to see what happens when you start peeling the ol’ onion.
P.S, Can we please get rid of the ad with the stomachs on the right? More NSFW than you’d think and besides, if I want to look at stretch marks I’ll look in the mirror…
golf4me: They’re getting my money. The huge scandal here is that Chrysler can’t pay out 12% interest in three years without being propped up by the federal government. So basically my money goes out of my pocket and into the hands of these investors.
And even if they weren’t getting my money through taxes, I would darn well want to know if anybody I had invested with was stupid enough to buy into Chrysler.
This is the type of digging that the media SHOULD be doing about everything in the bailout and stimulus. There’s no way that anyone can consent to this monstrosity as it is without knowing all the relevant information. But the media knows which way the wind blows and they know who signs the paychecks.
@ Jimal:
Use one of the ad-blocking programs for Firefox or Safari. I don’t see any ads, other than the Yahoo Finance sidebar and the godawful RSS/Digg/Stumbleupon/Facebook sidebar.
This is just like The X-Files. Keep diggin’ guys. I want to believe.
Wow 12% in autos. Chrysler no less too. I wanna read that prospectus – it must be a work of high finance art.
I watched Geithner testify for 3 1/2+ hours today, and he talked about how he was going to make everything public about where the Tarp money went and what they did with it. The senators were mightily pleased. Looks like one of those protectors of freedom and the public purse would swear in Nardelli and/or Feinberg and give them a verbal water boarding to get some very pertinent info. That is if they’re so worried about our welfare. Corker was almost drooling over the car company’s presentation on the 17th. He said he might not be able to sleep on the 16th.
Shelby was bitching about Geithner’s plan not being complete, given he’s been in office for over a week. Dodd reminiesed about the same committee having a hearing just 8 years ago with Greenspan testifying about the risks of paying off the national debt. They fixed that problem.
12% is the interest rate Cerberus is paying against the face value of the bonds, but that says nothing of any relationship with Franklin Templeton. The bonds could have been purchased on the open market, at a premium or discount to par which lowers or raises the effective yield to FT.
As for the equity exposure, I note that the report is almost a year old, before the credit crunch hit and there was still potential value in beat-up American auto stocks. It wasn’t necessarily a bad investment for a “recovery” fund, based on information available at the time and (presumably) a dirt-cheap price.
As for the equity exposure, I note that the report is almost a year old, before the credit crunch hit and there was still potential value in beat-up American auto stocks. It wasn’t necessarily a bad investment for a “recovery” fund, based on information available at the time and (presumably) a dirt-cheap price.
It was a bad investment then for the same reason that it remains a bad investment today: Chrysler is bereft of competitive products and the resources to create them, and Chrysler is burdened by obligations that would require market-beating products to overcome. Without fleet sales and channel-stuffing tactics, Chrysler would already be dead. Channel-stuffing tactics are a time bomb which must eventually explode. Lot after lot of unsold product piling up (BEFORE auto sales fell off a cliff) should have signaled to any reasonable investor that this business can no longer compete and must resort to desperate measures to survive even for a while.
Too many investors mistakenly believe it is possible to analyze a business and make a profit without an actual understanding of what the business does. Chrysler is doomed and has been since Daimler stripped it to the bone. Any investment fund which decided otherwise is not fulfilling its obligations – unless they were counting on exactly what is happening today.
THAT is the big question about Chrysler: is this business anything BUT a means to move money from the taxpayer’s pocket to the investing financial institutions’ accounts under the guise of shoring up American auto manufacturing? I certainly can’t see any other explanation.
You know what the real irony is?
Think about how much this resembles the repackaging and reselling of subprime mortgage bonds…
Brian E., how do you see Ceberus making money from the taxpayer bailout of Chrysler?
I’m the last one to defend any financial parasite but seriously: yes, investors buy and sell their investments – just what is that “OMFG! Developing!” story here…?
follow this guy’s trail and I think you will find what you are looking for
http://en.wikipedia.org/wiki/Ronald_Perelman
because of this guy
http://en.wikipedia.org/wiki/George_N._Gillett_Jr.
Berlin City, Gorham, NH
“THAT is the big question about Chrysler: is this business anything BUT a means to move money from the taxpayer’s pocket to the investing financial institutions’ accounts under the guise of shoring up American auto manufacturing? I certainly can’t see any other explanation.”
I can’t imagine any sane investment group would risk such a move in the current volatile political situation – OTOH that’s not to say they weren’t banking on it last year… ;)
BTW I do not think Cerberus wanted any piece of the car industry, they wanted to make money on Chrysler – it’s just that Daimler knew a lot about making cars and Cerberus knew nothing so CG ended up with the fishbone.
Brian E,
Chrysler is bereft of competitive products and the resources to create them
But wasn’t that the point? That is why Cerbius bought them cheap. They planned to get competitive cars made overseas (China) and sell them though the existing Chrysler network. They wanted to do to the car industry what WalMart did the the mom-n-pop retail store.
But there have been no killer cars coming out of China/India to sell. It turns out making and selling cars in the US is a bit harder than selling cheap Chinese made hammers at Home Depot. And lastly, the car market shriveled up.
So they are stuck trying to sell 2nd-rate cars in a ever shrinking market and competitive market.
The irony is that they are demanding taxpayers give them money to save US jobs when they infact had planned to eliminate all the jobs from the get go.
Jeez, if people only put 10% of the effort into understanding Japanese and Chinese currency manipulation (and European protectionism) as they do into this complete non-story…
Only in America, people. Only in America.
And there should be Daimler executives in jail for what they did to Chrysler.
Brian E., how do you see Ceberus making money from the taxpayer bailout of Chrysler?
I think there are two parts to the plan: first, find a partner to provide designs for newer cars in exchange for manufacturing agreements. This part has already been satisfied in the form of the deal with Fiat, but who knows if Chrysler isn’t the dupe here? Fiat is as toxic a business partner as ever there was.
The second part is to get government loans to continue to float an operation that would choke to death on its incredibly poor cash-flow. Once dealers stop taking inflated inventory, the machine grinds to a halt, as TTAC has already covered well. Chrysler dealers are now stuck with a mound full of inventory that nobody wants to buy and few products that people do want to drive. This is where the partner comes in. By providing a short-term injection of competitive products, Chrysler can keep the lines running and pumping out product for a while longer. After a few press junkets and smoke-and-mirrors demonstrations of alternative powertrain vehicles, the illusion of a Chrysler turnaround will be well established, and the temporary sales boost from the supposedly new products will allow them to pay off the investors.
But by admitting defeat and badge-engineering Fiat’s products instead of developing its own, Chrysler has already sewn the seeds of its own destruction. It doesn’t have competitive products now, and it does not walk away from this deal with a stronger product development organization. Everything about this turnaround is illusory when compared to the product improvements that GM and Ford have been struggling to deliver!
Fiat, on the other hand, gets a chance to claw its way back into the US market – and if it manages to do so, it has no incentive to give the better products to Chrysler. And once the interest on those bonds is paid, Chrysler is right back in the poorhouse again. Fiat walks away with North American manufacturing that’s key to its survival as an independent auto maker, and Daimler gets a sucker-punch in the mouth to make up for what they did to Chrysler during the merger-of-equals era.
But there have been no killer cars coming out of China/India to sell. It turns out making and selling cars in the US is a bit harder than selling cheap Chinese made hammers at Home Depot.
And that’s what I meant about investors who believe that it’s possible to run a business without actually knowing anything about that business. Plus, it defies the ordinary rules of business logic to boot. If Chinese and Indian companies had killer products, why aren’t they standing at the top of their own market? Why aren’t they aggressively expanding in markets closer to home? Why wouldn’t they come to the US on their own, following the example of the Japanese and the Koreans?
If I’m wrong about any of this, tell me how! I want to know the truth as much as anyone here.
It is somewhat interesting, but I too don’t really understand the point of it all. It is EXACTLY like looking at one’s mortgage if it has been securitized and sold. My personal mortgage has changed hands now 5 times. I don’t really have any kind of “EUREKA” moment when I see it is now owned by Wells Fargo instead of the local savings and loan that initialized the loan to me in 1988. When I examine property records in the course of business, I often come across very similar sounding names of mortgage CDO’s as the investor SIV’s identified for Cerberus. I’m guessing that those LLC’s (SIV’s) we constructed (manufactured) in that way simply because the math worked in their favor. As far as 12% interest, this is considered to be reasonable returns for “risk capital”. I know it comes as a shock that it is not that 5.5% on a fixed mortgage, or the %0.0 60 month auto loan, but that is not the real business world. “The Donald financed most of his gaming neterprises with bonds and debt approaching in some cases 18%. But he, like so many other gamers, received his “bailout” in the form of a cram down, pre-packaged C11. Those are the real bailouts you should rail against, as they result in untold billions of lost tax revenue and “carry forward losses” for the Treasury.
It is not hard at all to find debt yeilds in this range for many well known American or multi-national corporations.
The fact that pension funds, banks, insurance companies, and any of those similar institutions purchased a tranche or made investments into the SIV should be no surprise. It is WHAT these institutions do. They buy pieces of lots of investments. They usually buy these after being called upon a sales rep for that particular (manufacturer) or underwriter. And correct, the y do not do much in the way of extensive analysis of this or any other particular business. In the main, they rely on the credit rating agencies and relationships with the seller (SIV manufacturer) for much of their buy decision.
This is not much different than American Nose Hair Mfg. Co. and having a team that designs the product, a marketing team naming the product, a factory that packages the nose hair in various sized packages, and a sales force that goes out and beats the bushes looking for likely prospects to purchase said nose hair. Hell, of course they don’t sell all their nose hair to any one customer.
If your basic concerns/complaints are that this is the NEW manufacturing/engineering in the US, you are CORRECT! We (all) have been willing accomplices to having our country de-industrialized during the last 20 years+. The FIRE (finance/real estate/insurance) portion of the economy has assumed a major portion of our nations GDP.
This is a little like the argument of people wanting to see Bank of America blow up and the “equity holders” and bond debt holders get toasted. The dirty little secret here is that unless you live under a rock, have no money set aside in any instrument other than a mattress or tin cup, you probably own BOA whether you know it / like it or not. Same probably holds true for the afore mentioned CG SIV’s.
So in a round-about way, this bailout is for YOU!
As Captain Renault in Casablanca said “I’m shocked, shocked to find that gambling is going on in here!
Countryboy alludes to it, but I want to say it; the American model of “ownership” over “investment” is fundamentally broken.
The money-changing criminal gamblers on Wall Street have spent 30 years finding ways to slice and dice so that they can trade more often. They take a cut rising or falling. They assist all sorts of vehicles and creations “own”, fleetingly, some derivative version of some risk and push it on as fast as possible.
True “investment” needs to return. You look at the fundamentals of a business, INVEST, and then take an active and ongoing interest in it’s performance.
What happened to the days of buying a direct stock for a dividend return, and paying attention to that business. Stockholder activism has all but disappeared, and the largest institutional stockholders hardly raise a murmur. Now they happily slice and dice your 401k/retirements in all directions and they don’t take any interest in what should be an INVESTMENT.
In Australia, we have stories of local councils “investing” with one “hedge fund” who repackaged/traded/lost via Santander to Madoff?? What was that capital doing to create wealth or value-add?? Nothing. It was being skimmed as often as possible.
Shorts, CDOs, hedge-funds and all the other contraptions that supposedly allow capital to be more “liquid” should be finished off. INVEST into real value-add business/manufacturing and productivity, take an interest in your investment’s decisions/innovation and hope the world can make it back.
Apologies for the rant.
Jeez, if people only put 10% of the effort into understanding Japanese and Chinese currency manipulation (and European protectionism) as they do into this complete non-story…
Well I’m all ears if you care to explain in layman’s terms all about this said manipulation and protectionism.
“Shorts, CDOs, hedge-funds and all the other contraptions that supposedly allow capital to be more “liquid” should be finished off. INVEST into real value-add business/manufacturing and productivity, take an interest in your investment’s decisions/innovation and hope the world can make it back.”
That about says all there is to say. Except, perhaps to ask the question why none of the “stimulus,” TARP or the bridge loans to nowhere don’t ever address this fundamental issue. I worry that the new American “leadership” will work through the elite financial community to transfer wealth continuously between the very wealthy and the government. The rest of us…will get to eat cake and pay exorbitant taxes so illegal aliens can have free health care and tuition.
This is great reporting!
my thoughts exactly
countryboy:
It is somewhat interesting, but I too don’t really understand the point of it all. It is EXACTLY like looking at one’s mortgage if it has been securitized and sold. My personal mortgage has changed hands now 5 times.
You missed Mr Farago’s point. Responsible investment houses are hiding / not labeling Cerberus CG Investor funds (I – III) as ‘Automotive’ or ‘Auto Manufacturing’.
I’m late to this conversation, but this sure sounds like some sort of conspiracy theory group.
Cerberus is a private equity firm which is pretty much like it sounds. They take in private (read individual, not secretive) investments and then use that pool of capital to purchase or invest in companies. I am no expert in the PE world, but have worked with a few in a consulting role.
If you have enough money, it is relatively simple for anyone to become an investor in a private equity fund. Depending on the PE company, the hurdle could be tens or hundreds of thousands or even millions. Investors could be the rich who are looking for additional opportunities outside the stock market, or pension funds, colleges, etc.
There is nothing at all nefarious about the multiple funds that some people seem to think means something. PE firms start up new funds periodically to raise a chunk of money and it is generally invested separately from previous funds. Basically, they will decide to start, say, a new $100 million dollar fund and when they get that amount raised, they start buying and selling portfolio companies or portions of them.
If you are bought into Fund 4, you win or lose based on that portfolio’s performance. What happens in Fund 3 really is irrelevant to you as an investor. After some period of buying, holding, and selling companies the fund is, many times, finished after the last sale and the profits (hopefully) disbursed to the investors.
Some PE firms are specific in the types of investments they make, such as retail, manufacturing, etc. and sometimes the individual fund will be as well. Other times the fund is made up of a mix of different portfolio companies.
Generally speaking, PE firms are looking for distressed or undercapitalized companies that can be turned around or merged into other portfolio companies to create synergies. Or perhaps a division can get spun off into a more successful standalone company if it isn’t encumbered or overshadowed by the current parent. Once they become successful (by whatever criteria) they could go public or be sold to private investors or another PE firm.
People seem to want to make Private Equity out to be some sort of exotic investment vehicle, but it is probably the closest to “pure” investing there is outside of buying a company yourself. A bunch of people pool their money in a PE fund and then their (the PE firm’s) smart people figure out what companies to buy and how they can improve them so that they can be sold for more later.