Future of GM's financing firm still remains uncertain
Deadline passes to qualify for bailout money
GRAND BLANC, Mich. - Even after a crucial deadline came and went, the financing arm of
Analysts have speculated that if GMAC Financial Services LLC doesn't obtain financial help it would have to file for bankruptcy protection or shut down, which would be a serious blow to parent GM's own chances for survival.
GMAC had received the Federal Reserve's approval to become a bank holding company earlier in the week, but the approval was contingent on the ailing auto and home loan provider completing a complicated debt-for-equity exchange by 11:59 p.m. Friday.
In an e-mail yesterday, GMAC spokeswoman Gina Proia did not provide any specifics.
"The offer did expire . . . at 11:59 p.m. as planned. We have not yet issued final results but intend to in the near term," she wrote.
Becoming a bank holding company would qualify GMAC to access the government's bank rescue funds and support GMAC loans to car buyers and GM dealerships. GM owns 49 percent of GMAC.
The Federal Reserve apparently needed to see whether bondholders were willing to inject more capital into GMAC. The bondholders needed reassurance that the Fed would approve GMAC's application to qualify for federal aid.
If the auto lender failed to meet the exchange deadline, the repercussions for General Motors could be dire, according to Erich Merkle, an auto industry analyst with Crowe Horwath LLP.
GM's ownership of GMAC has kept the finance arm lending to dealers and car buyers, even as credit from banks has dried up. If GMAC goes under, other institutions aren't likely to step in to replace the credit lost.
"It would make a difficult selling environment for GM that much more difficult," Merkle said in an interview yesterday.
The Fed's action came as GMAC was struggling to get bondholders to convert 75 percent of their debt into equity of the company.
GMAC's goal is to reach $30 billion in capital, the majority of which would come from the exchange of debt. Another part of the equity requirement included a demand from the Fed that $2 billion of the total come from new equity. So far, GMAC has received a commitment of $750 million from GM and Cerberus Capital Management.
GMAC has not said publicly how much it was requesting from the $700 billion bank bailout fund. CreditSights analyst Richard Hoffman estimated in a research note Friday that GMAC "could have applied for up to about $6.3 billion."
The Fed order says GM will reduce its stake to less than 10 percent of the voting and total equity interest of GMAC. GM's remaining equity interest in GMAC will be transferred to an independent government-accepted trustee who must dispose of the equity held in the trust within three years of the trust's creation.
Cerberus, which led an investment group that bought a 51 percent stake in GMAC from the automaker for $14 billion in 2006, will reduce its stake in GMAC to no more than 33 percent of total equity.