General Motors has sold a majority interest in its commercial mortgage division in a deal worth US$9bn that gives its finance arm a boost as it prepares for its own sale, The Associated Press (AP) reported.
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The General Motors Acceptance Corp (GMAC) sale is seen as essential for increasing struggling GM’s cash pile and boosting its credit rating, reducing its cost of borrowing, according to industry pundits.
AP said GMAC would raise US$1.5bn in cash from an investment group for a 78% stake in the commercial mortgage business. That business, known as GMAC Commercial Holding Corp., also repaid $7.3bn in inter-company loans, boosting total proceeds for GMAC to almost $9bn.
The Associated Press noted that the deal for the mortgage unit stake is separate from GM’s announced plans to sell a controlling interest in GMAC. The mortgage unit, GMAC Commercial Holding, has also changed its name to Capmark Financial Group.
The Associated Press said Fitch Ratings assigned Capmark an investment-grade BBB rating, saying the company is already one of the largest originators of commercial mortgage assets and has been broadening its reach with businesses in Europe and Asia. Standard and Poor’s Ratings Services assigned Capmark a BBB- rating, its lowest investment-grade rating, the report added.
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By GlobalDataThe news agency noted that GMAC’s credit rating had been downgraded to junk status last year because of continuing losses at GM and added that some major investors are prohibited from buying bonds without an investment-grade rating, making it tougher and more expensive for the borrower to raise money.
GM is trying to sell a 51% stake in GMAC in order to raise cash and restore the division’s ratings, AP added.
Burnham Securities analyst David Healy told The Associated Press it was unlikely that money from the sale would be used for GM and Delphi hourly worker buyouts announced earlier this week, since GM has other sources of cash, including the recent sale of its stake in Suzuki Motor for US$2bn. Instead, Healy said the $9bn could help attract a buyer for GMAC.
The report noted that GM is under enormous pressure to reverse its fortunes – it recently had to increase by $2bn its reported 2005 loss to $10.6bn, and has been losing US market share due to increasing competition from Asian automakers.
In order to help raise cash, GMAC last year sold off $75bn in US auto loans to Scotia Capital and Bank of America, The Associated Press added.
