Cerberus' problems deepen amid Chrysler, GMAC woes

Business Materials 25 February 2008 02:43 (UTC +04:00)

( Reuter )- 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: Quote, Profile, Research), 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: Quote, Profile, Research), the largest U.S. automaker, in 2006,

Also, Scottish Re Group Ltd (SCT.N: Quote, Profile, Research), 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.