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GMAC to get US$7.5b in extra funds
By Jeannine Aversa |
May 23, 2009, Saturday
|
Print Edition
Print Edition
AUTO lender GMAC Financial Services will receive US$7.5 billion in additional government aid to keep loans flowing to would-be buyers of General Motors and Chrysler vehicles and shore up its capital position - marking the second time the United States government has stepped in to prop up the lender.
To help GMAC raise additional funds, the Federal Deposit Insurance Corp took the rare step on Thursday of allowing the junk-rated company to gain access to its debt guarantee program.
GMAC will be allowed to issue as much as US$7.4 billion in debt, guaranteed by the FDIC in case the company defaults on payment.
In addition, the Federal Reserve waived rules to give GMAC's new bank, called Ally Bank, more leeway to make loans to GM customers.
Analysts suggest that the new government support will make GMAC a lending powerhouse that will give GM and Chrysler a huge advantage over their competitors, including United States rival Ford Motor Co, which hasn't taken any government aid. It would have the power to offer better loan terms to buyers of GM and Chrysler cars and trucks as a way of steering business to those auto makers.
GMAC received US$5 billion in December from the Treasury Department's US$700 billion financial bailout program in exchange for 5 million common shares and the promise to extend financing to dealers of Chrysler LLC, which is restructuring under Chapter 11 bankruptcy protection.
After failing the government's bank stress test, the department mandated earlier this month that GMAC raise US$11.5 billion in additional capital, including US$9.1 billion of new capital.
But GMAC, which reported a first-quarter loss of US$675 million, has seen rising defaults in its auto finance division.
That, combined with soured assets in its Residential Capital LLC mortgage unit, made it difficult for the company to raise capital from private investors.
To help GMAC raise additional funds, the Federal Deposit Insurance Corp took the rare step on Thursday of allowing the junk-rated company to gain access to its debt guarantee program.
GMAC will be allowed to issue as much as US$7.4 billion in debt, guaranteed by the FDIC in case the company defaults on payment.
In addition, the Federal Reserve waived rules to give GMAC's new bank, called Ally Bank, more leeway to make loans to GM customers.
Analysts suggest that the new government support will make GMAC a lending powerhouse that will give GM and Chrysler a huge advantage over their competitors, including United States rival Ford Motor Co, which hasn't taken any government aid. It would have the power to offer better loan terms to buyers of GM and Chrysler cars and trucks as a way of steering business to those auto makers.
GMAC received US$5 billion in December from the Treasury Department's US$700 billion financial bailout program in exchange for 5 million common shares and the promise to extend financing to dealers of Chrysler LLC, which is restructuring under Chapter 11 bankruptcy protection.
After failing the government's bank stress test, the department mandated earlier this month that GMAC raise US$11.5 billion in additional capital, including US$9.1 billion of new capital.
But GMAC, which reported a first-quarter loss of US$675 million, has seen rising defaults in its auto finance division.
That, combined with soured assets in its Residential Capital LLC mortgage unit, made it difficult for the company to raise capital from private investors.
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