U.S. Takes Controlling Stake in GMAC in Third Bailout

Dec. 31, 2009
An infusion of $3.8 billion will give government 56% control

The government threw troubled GMAC a third lifeline, of $3.8 billion, and took a controlling stake in a bid to turn around the mortgage and auto lender. The Treasury said the move would raise its equity stake in GMAC to 56% from 35%.

The ailing former finance arm of General Motors became a bank holding company a year ago to access federal aid amid the global financial meltdown.

"Due to a variety of factors, including that the restructurings of General Motors and Chrysler were accomplished with less disruption to GMAC than banking supervisors initially projected, Treasury will commit $3.8 billion of new capital to GMAC rather than the $5.6 billion originally announced," the Treasury said.

It had injected a total of $12.5 billion in capital into GMAC in two installments. The bailout funds are part of the $700 billion Troubled Asset Relief Program (TARP).

The Treasury also announced a restructuring of its investment in GMAC "to protect taxpayers and put GMAC in a position to raise private capital and pay back taxpayers as soon as practicable."

"These actions offer the best chance for GMAC to complete its overall restructuring plan and return to the private capital markets for its debt financing and capital needs in 2010," it said.

The $3.8 billion taxpayer-funded capital injection will be in the form of $2.54 billion of trust preferred securities and $1.25 billion of mandatory convertible preferred (MCP) stock. Treasury said it would also receive warrants for both types of stocks, totaling $190 million, which it would exercise immediately at the close of the transaction.

The Treasury said it would convert $3.billion of its existing MCP, which was invested in May 2009, into common equity "to boost the quality of the capital supporting GMAC."

Given the increased ownership, the Treasury will have the right to appoint two additional directors, in addition to the two it has, to the nine-member GMAC board of directors. The department said it plans to nominate its new directors in time for GMAC's annual meeting at the end of April.

GMAC plans to step up the pace of its repayments to the government. "By protecting the financial performance and strength of our core automotive finance operations, we expect to increase the pace at which we can fully repay the U.S. taxpayer," Michael Carpenter, GMAC chief executive, said.

Copyright Agence France-Presse, 2009

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