GMAC Gets $4 Billion More from Government

Mortgage News

Mortgage Daily Staff

                                                 December 30, 2009

GMAC Financial Services received nearly $4 billion more from the government. Much of the new capital was plowed into Residential Capital LLC — positioning it for a possible sale.

In an announcement late today, the New York-based firm said it received a $3.79 billion capital infusion from the U.S. Department of the Treasury. The company noted that the $3.79 billion was less than the $5.6 billion that the Federal Reserve anticipated in May it would need.

The transaction was structured with $2.54 billion in trust preferred securities and $1.25 of mandatorily convertible preferred securities. GMAC also issued $5.25 billion in new mandatorily convertible preferred securities in exchange for all GMAC non-convertible preferred stock held by the government.

In addition, the company converted $3.0 billion in existing mandatorily convertible preferred securities held by the Treasury into GMAC common equity. The Treasury’s holdings of the company’s mandatorily convertible preferred securities now totals $11.4 billion.

“With these actions, GMAC has achieved the capital buffer required under the Federal Reserve’s Supervisory Capital Assessment Program needed to meet the worse-than-expected economic scenario,” the news release stated.

A $15 billion government package was announced by GMAC in May, while the company obtained $5.0 billion in capital investments under Troubled Asset Relief Program a year ago.

GMAC said it wrote down $2.0 billion in ResCap mortgage assets as part of a reclassification of held-for-investment loans to held-for-sale. An additional $0.5 billion charge for repurchase reserves was also taken.

“These actions, inclusive of estimated operating losses for the period, required a total capital contribution to ResCap of approximately $2.7 billion in the form of mortgage loans acquired by GMAC from Ally Bank, GMAC debt forgiveness and cash,” GMAC said. “With the capital contribution, ResCap’s net worth will exceed the minimum level required to meet certain covenants.

“Following these transactions, GMAC does not expect to incur additional substantial losses from ResCap and will be better positioned to explore strategic alternatives with respect to mortgage operations.”

The move suggests that GMAC plans to keep ResCap intact while it explores a possible sale — though it had previously discussed a possible bankruptcy for the unit.

The statement stressed that GMAC’s top priority is auto financing.

In an effort to improve asset quality at subsidiary Ally Bank, GMAC said it purchased some higher risk mortgage assets at fair value of around $1.4 billion — resulting in a $1.3 billion pre-tax charge which GMAC contributed in cash to Ally. The assets purchased from Ally were contributed to ResCap.

Mortgage Daily Staff

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