GMAC quiet on bailout hurdle after deadline passes

[December 29, 2008]  GRAND BLANC, Mich. (AP) -- Even after a crucial deadline came and went, the financing arm of General Motors Corp. remained silent Saturday on whether it cleared a final hurdle to become a bank holding company and gain access to billions in federal bailout money.

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. EST Friday.

In an e-mail early Saturday, GMAC spokeswoman Gina Proia did not provide any specifics.

"The offer did expire yesterday at 11:59 p.m. as planned. We have not yet issued final results but intend to in the near term. I have no further comment on the exchange until then," she wrote.

Becoming a bank holding company would both 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 that 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.

General Motors' 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 by GM's dealers and customers, Merkle said.

"It would make a difficult selling environment for GM that much more difficult," Merkle said in an interview Saturday.

More than half of all new vehicle sales in the U.S. involve loans made at the dealership through financing entities like GMAC, said Tom Libby, an industry analyst at J.D. Power and Associates.

"When that source of credit dries up, it has an immediate negative impact on the industry," Libby said in an interview.

The Fed's action Wednesday 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. It's unclear whether that funding would come from the bridge loans the U.S. Treasury granted GM and Chrysler LLC -- which is owned by Cerberus- earlier this month.

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.

[Associated Press; BY KIMBERLY S. JOHNSON]

Associated Press Business Writer Jessica Mintz in Seattle contributed to this report.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.