US: GMAC gets Treasury "infusion"
Author: just-auto.com editorial team | 4 January 2010
GMAC Financial Services recently announced a series of actions it said would strengthen the company's capital base, position it for improved financial performance, minimise further adverse effects on GMAC related to home mortgage provider Residential Capital (ResCap), and improve access to capital markets in time.
"Additionally, the actions position GMAC to explore strategic alternatives for ResCap and the mortgage business and are expected to accelerate the timetable for repayment of the US government's investment," the firm said.
The capital actions are an "infusion" of $3.79 bn from the US Treasury consisting of the purchase of $2.54bn of trust preferred securities, with a coupon of 8%, and $1.25bn of mandatorily convertible preferred securities (MCP), with a coupon of 9%.
The exchange of all the GMAC non-convertible preferred stock held by the Treasury for $5.25bn of newly-issued MCP.
The conversion of $3bn of existing MCP held by the Treasury into GMAC common equity. Following the conversion and new issuances of MCP, the Treasury will hold approximately $11.4bn of MCP.
With these actions, GMAC has achieved the capital buffer required under the Federal Reserve's Supervisory Capital Assessment Program (SCAP) needed to meet the worse-than-expected economic scenario, the financier said.
The $3.79 billion cash infusion was less than the $5.6bn originally anticipated by the Federal Reserve in May 2009 due in large part to lower-than-expected losses related to the General Motors bankruptcy filing.
As previously announced in May 2009 as part of the SCAP, the Federal Reserve instructed GMAC to raise $9.1bn of additional capital. At that time, the Treasury purchased $3.5bn of GMAC MCP in partial satisfaction of the SCAP requirements, which left $5.6 billion remaining in new capital required. Since then, GMAC, the Federal Reserve and the Treasury have been in discussions to finalise the amount, structure and terms of the additional capital to be issued by GMAC to the Treasury.
The $3.79bn investment represents the completion of a two-part capital investment by the Treasury anticipated in connection with the SCAP.
GMAC's remaining common equity holdings following the conversion are: Cerberus and its affiliates hold approximately 14.9%, third party investors hold approximately 12.2%, a trust managed by an independent trustee for the benefit of General Motors holds approximately 9.9%, and an affiliate of General Motors LLC holds approximately 6.7%.
Sectors: Financial
Companies: General Motors
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