JP Morgan faces being lumbered with $12 billion (£5.8 billion) of debt after failing to drum up investor interest in financing Cerberus Capital Management's acquisition of Chrysler, the loss-making American carmaker.

Cerberus won out against rivals in May to buy an 80.1 per cent stake in Chrysler from German parent DaimlerChrysler, for an initial consideration of $7.4 billion and a further $20 billion that will be injected into the company's pension fund as well as its financial services group.

JP Morgan has raised the entire $20 billion and, according to The Wall Street Journal, it has successfully sold $8 billion worth of the debt being lent to Chrysler's financial services business to other financial institutions.

However, the newspaper said the American bank has so far failed to drum up enough interest among the investor community to buy into the remaining $12 billion debt earmarked for Chrysler's car making group.

Chrysler's banks — JP Morgan, Goldman Sachs, Citigroup, Bear Stearns and Morgan Stanley — may have to underwrite as much as $10 billion of the debt if investors continue to shy away from buying into the loans.

The American debt market has been overshadowed by the collapse of the country's sub-prime mortgage industry. A number of companies and their bankers are being forced to rethink their funding arrangements including KKR, the private equity firm that recently agreed to acquire Alliance Boots which has hit problems over agreeing the terms of a £9 billion financing package.

It is also understood that the sale of a $3.1 billion loan being raised to finance Carlyle Group and Onex's acquisition of General Motor's Allison Transmission business has been postponed and now will only be offered to a small group of banks.

Meanwhile The Wall Street Journal also reports that Chrysler is putting pressure on its car dealers to increase sales within the next six months or face closure, in an attempt to stem the company's losses in the US. Last year, Chrysler reported a $1.6 billion loss across the business and announced plans to cut 13,000 jobs in America and Canada.

Chrysler sells its cars through a 3,700 strong network of dealerships which, along with its US competitors General Motors and Ford, it has been attempting to shrink in order to stamp out undercutting on pricing.

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