Lifeline Extended to GMAC

While TARP preferred investments typically yielded 5 percent during the first five years and 9 percent thereafter, GMAC has agreed to pay 8 percent over the life of the investment. The warrants, if exercised, will yield 5 percent.

As part of the investment agreement, GMAC must comply with executive compensation provisions of the capital purchase program.

The Treasury said the GMAC transaction is part of a broader bailout for the auto industry. As part of the stock sale, General Motors Corp. — which has a 49 percent stake in GMAC — has received a $1.00 billion loan from the Treasury to participate in a GMAC rights offering that will enable its transition to a bank holding company.

GMAC originally submitted its application to become a bank holding company to the Federal Reserve Board of Governors in November. The fed approved GMAC’s application on Dec. 24, while the Utah Department of Financial Institutions approved the conversion of GMAC Bank to a state bank.

In its own announcement, GMAC also said that GM and an affiliate of Cerberus Capital Management — which owns the other 51 percent of GMAC — contributed $0.75 billion in subordinated participations in the $3.50 billion senior secured credit facility between GMAC and ResCap in exchange for new common equity in GMAC. GM and Cerberus additionally agreed to purchase $1.25 billion in new common equity.

GMAC said conditions to its previously announced private exchange offers and cash tender offers have been satisfied.

GMAC has been bleeding capital as ResCap has reported around $9 billion in losses since last year. Last month, ResCap warned that it might collapse if GMAC stopped feeding it capital. While no indication was given by GMAC about the future of ResCap — the TARP investment has increased GMAC’s available options.

With $11.2 billion in residential originations, ResCap was ranked as the fifth biggest U.S. lender by MortgageDaily.com during the third quarter.

Related:
GMAC Approved to Become Bank Holding Co
GMAC LLC has received federal approval to become a bank holding company — potentially increasing access to capital for its mortgage lending subsidiary.

GMAC Submits Bank Application to Fed
Depositors and taxpayers could fund home loans and car loans if GMAC Financial Services’ application to become a bank-holding company is approved. The move has the potential to positively impact the mortgage industry more than any other action under the Troubled Asset Relief Program.