The 2007 Jeep Wrangler Rubicon. Chrysler Group, makers of Jeep, is being sold by German parent Daimler to America's Cerebrus. - File

Investment banks raising funds for the turnaround of Chrysler Group postponed a US$12 billion debt offer after investors balked, so they will now fund the bulk themselves to keep the automaker's sale on track, people familiar with the matter said Wednesday.

But Chrysler's sale to a private-equity firm was put back on track later Wednesday after the banks, which include Goldman Sachs Group and JPMorgan Chase & Company, agreed to fund about US$10 billion of the deal, said the people could not comment on the record because they were not authorised to speak publicly.

Cerberus Capital Management, the buyer, and DaimlerChrysler, the seller, will together fund the other US$2 billion.

The banks will take a second-lien position behind Cerberus and Daimler, which means that Cerberus and Daimler would collect first in any default.

The move had been expected by Wall Street, as investors have become more reticent to buy into deals because of woes in the home-mortgage market and less demand for high-yield debt.

Cerberus plans to raise about US$62 billion in total as part of a plan to recapitalise Chrysler and refinance old debt.

A spokesman for Cerberus would not comment about the new financing plan, but said the acquisition of an 80 per cent stake in Chrysler Group is still on track to close in coming days.

Deal on track

DaimlerChrysler Chief Financial Officer Bodo Uebber was asked about the issue during a conference call about the Mercedes Car Group but declined to comment on the financing and loan situation. Chairman Dieter Zetsche also declined to comment, but insisted the deal was on track to close as scheduled.

Bankers have had a better time raising about $6 billion in loans for Chrysler's finance unit, according to people familiar with the matter who were not authorized tospeak publicly on that deal.

Though terms had to be sweetened, that financing - along with the $12 billion raised by the banks, Cerberus and DaimlerChrysler - is expected to close on August 3.

Other banks that will split the US$10 billion financing include Citigroup, Morgan Stanley, Bear Stearns Cos., Toronto-Dominion Bank, and the Royal Bank of Canada. They could not immediately be reached for comment.

Chrysler Group is in the midst of planning a massive celebration to mark its return to American control hands after nine years of ownership by the German-based automaker.

Cerberus, one of the largest U.S. buyout shops, announced in May it would pay $7.4 billion to buy the company from Daimler.

The bid is a stunning reversal of the takeover of the Jeep and Dodge maker by Daimler Benz AG in 1998 it was billed as a merger that would create a global automotive powerhouse, the corporate cultures clashed and the companies never fully integrated their operations.

DaimlerChrysler will hold a stake of less than 20 per cent in Chrysler once the deal is completed.

- AP

More than US$16 billion worth of leveraged loan and high-yield bond deals have been canceled or postponed so far this summer, according to Fitch Ratings.