ss_blog_claim=bd50edc517cf0b7549fe6b5f63b6b5f8 The SLS Business Finance Blog: Ripple Effect of the Auto and Mortgage Industries: GMAC

Thursday, December 11, 2008

Ripple Effect of the Auto and Mortgage Industries: GMAC

Reprinted from The Monitor, this article shows how GMAC, GM's financing arm, is having trouble adjusting its business so it can be eligible for funds under the gov't bailout plan known as TARP (Troubled Asset Relief Program).

GMAC Struggling to Satisfy Capital Requirements to Become a Bank

GMAC Financial Services (GMAC) said it has extended the early delivery time with respect to its separate private exchange offers and cash tender offers to purchase and/or exchange certain of its and its subsidiaries' by three days to 5 p.m., New York City time, on Friday, December 12, 2008, in order to provide investors with a final opportunity to consider the GMAC and ResCap offers.

The Federal Reserve has required GMAC to, among other things, achieve a minimum amount of total regulatory capital of $30 billion in connection with its application. In order for such condition to be satisfied, among other things, the estimated overall participation in the offers would be required to be approximately 75% on a pro rata basis. The Federal Reserve has informed GMAC that if GMAC is unable to meet these capital requirements, it will not approve GMAC's application to become a bank holding company. To date, approximately $6.3 billion in aggregate principal amount (or 22%) of the outstanding GMAC old notes have been tendered in the GMAC offers and approximately $2.0 billion in aggregate principal amount (or 21%) of the outstanding ResCap old notes have been tendered in the ResCap offers.

The company said if its unable to successfully convert to a bank holding company and complete the GMAC and ResCap offers by December 31, 2008, "it would have a near-term material adverse effect on GMAC's business, results of operations, and financial position."

Editor's Note: GMAC's exposure to the auto and mortgage industries have severely weakened the company such that it had to consider going into a more regulatory environment (Banking) in order to get some of the bailout funds. This is a sure sign of trouble for GMAC.

Southern Lending Solutions

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