RLPC-Chrysler loans slump on liquidity rumors

NEW YORK, June 26 (Reuters) - Chrysler's loans softened on Thursday amid rumors that the company is facing a Chapter 11 filing, despite assertions from the company that the rumor is "without merit," sources told Reuters Loan Pricing Corp.

Chrysler Financial's first-lien term loan fell to a mid-level of 82 cents on the dollar, down about 4 cents, while Chrysler Corp's loan was quoted indicatively at a mid-level of about 55.

"There is no basis for the rumor," Chrysler spokesman Dave Elshoff said, adding that the company has ample liquidity. For details see [nN26306463].

The rumors came after Fitch Ratings cut the issuer-default ratings of both General Motors Corp(GM.N: Quote, Profile, Research) and Chrysler LLC one notch to "B-minus" on Wednesday, citing a cash drain at both companies. The ratings agency added that it may also downgrade Ford Motor and Ford Motor Credit.

The cost of protecting Chrysler Financial's loans with credit default swaps rose on Thursday to about 17.5 percent on an upfront basis, plus annual premiums of 500 basis points, versus upfront costs of 15.5 percent plus 500 basis points in annual premiums on Wednesday, according to a trader.

That means it cost $1.75 million a year to protect $10 million of Chrysler's loans for five years plus $500,000 in annual premiums.

The movement in Chrysler's loans comes amid a general downdraft in auto-related loans on Thursday and a generally bearish tone in the loan market, with the LCDX10 loan derivative index trading at a mid-level of about 97.05, down from about 97.65 on Wednesday.

Loans for auto-suppliers are also softer by about one-half to one cent on the dollar, with Allison Transmission's loan currently quoted at 89-to-90 cents on the dollar, Lear Corp.'s loan at 91.50-to-92.50, Dana's exit loan currently at 89.50-to-90.50 and TRW Automotive's loan at 96.50-to-97.50.

As reported earlier, Chrysler's loan is part of a two-part financing package backing Chrysler Holdings' buyout by Cerberus Capital Management.