Cerberus' problems deepen amid Chrysler, GMAC woes
NEW YORK (Reuters) - Cerberus Capital Management LP, the brash private equity firm named for a demonic dog, has been humbled in recent weeks by woes at two of its larger investments, automaker Chrysler LLC and auto and mortgage lender GMAC LLC.
Those companies' problems are merely among the most prominent in a series of bumps affecting one of the giants in private equity. Cerberus is run and founded by the reclusive Stephen Feinberg, and named for the three-headed canine that guarded the gates of the underworld in Greek mythology.
At the height of the private-equity boom, Cerberus made big returns for investors by investing in companies such as Vanguard Car Rental Group Inc, the parent of Alamo and National, which it sold to Enterprise Rent-A-Car in 2007.
Other good bets it has made have been on investments in AerCap Holdings N.V. (AER) based in the Netherlands, and Montreal-based Teleglobe International.
But it has made some contrarian bets such as Chrysler, whose salvation confounded Germany's Daimler AG (DAIGn.DE), causing some to wonder if Cerberus' Midas touch is fading.
The latest hits came on Friday.
GMAC and its Residential Capital LLC mortgage unit suffered large credit downgrades from Standard & Poor's. Cerberus bought a majority stake in GMAC from General Motors Corp (GM.N), the largest U.S. automaker, in 2006,
Also, Scottish Re Group Ltd SCT.N, a reinsurer into which Cerberus injected $300 million last May, said it would try to sell some units and cut costs to preserve capital and liquidity. The reason: its business plan does not work.
"Cerberus has among the smartest, most connected people the private equity business has ever seen," said Michael Holland, a money manager who runs Holland & Co, and is a former partner at private equity firm Blackstone Group LP (BX.N). "But it shows you the enormous challenges facing private equity right now."
A Cerberus spokesman said the firm remains "enthusiastic" about Chrysler, which he said is on track to exceed its long-term targets "on all key metrics." He also called GMAC "a resilient business platform with strong long-term growth prospects." The spokesman declined to discuss Scottish Re.
Last month, the Wall Street Journal quoted Cerberus' No. 2 executive, Mark Neporent, as saying the firm never commits more than 5 percent of its $26 billion under management to any one investment. That would limit risk.
INVESTMENTS FACE STRUGGLES
But much of the attention has focused on investments that look unwell, went sour -- or never happened.
Chrysler is a key focus, after Cerberus last August acquired an 80.1 percent stake from Daimler in a $7.4 billion transaction, taking on an estimated $18 billion of pension and health-care liabilities. It installed former Home Depot Inc (HD.N) chief Robert Nardelli to run the automaker.
The Wall Street Journal in December said Nardelli confirmed he told employees in a meeting that month that Chrysler, which is cutting thousands of jobs, was "operationally" bankrupt. Continued...
