Fresh Funds for GMAC

After failing a bank “stress test” in May, GMAC was given six months to raise $11.5 billion. Looks like as much as nearly half that money may come from the federal government.

Apparently, GMAC is in advanced talks with the Treasury Department for another cash infusion — this time, as much as $5.6 billion, according to the Wall Street Journal. (The amount could be as little as $2.8 billion.) The government has already funneled $12.5 billion into the captive-turned-bank — $5 billion in December 2008 and $7.5 billion this past May.

The latest cash outlay would come in exchange for preferred stock, which would raise the government’s 35.4% stake in the company if the shares were converted to common equity.

Aside from the Treasury funds, GMAC was approved earlier yesterday for FDIC insurance on $2.9 billion in debt. The move is meant to shore up GMAC’s ability to fund daily operations by making it easier to sell debt to investors. Already this year the FDIC has guaranteed $4.5 billion of GMAC-issued debt. In a nutshell, the FDIC insurance will enable GMAC to keep up its auto-loan volume, according to the WSJ article.

Tags: capital, fdic, gmac, treasury

Comment by Matthew Burril on October 28, 2009 at 1:54pm: Marcie: This has been priced into GMAC debt since mid March. GMAC has several billion in callable bonds all with coupons above 6%. The FDIC debt so far has been priced below 2.3% and this upcoming traunch will probably be priced similarily. This will be very good news for existing GMAC bond holders as the market value of the existing GMAC debt will get market support and GMAC will begin calling their high coupon pieces as soos as possible. All of this restructuring will give GMAC a terrific leg up going into 2010 and will be enough to carry them into 2012. .Most of their current debt is callable in 2012 and after. GMAC is on a path to a very good looking balance sheet... add in an uptick in auto finance in 2011 and 2012 and we taxpayers stand to make a good return on our investment.

Comment by Marcie Belles on October 28, 2009 at 1:59pm: Thanks so much for the clarification, Matthew. I hope you're right, and I look forward to reaping my taxpayer return.