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GMAC receives $5B in bailout funds

GMAC receives $5B in bailout funds

The Treasury Department said Monday that it will provide $5 billion to GMAC Financial Services LLC, the ailing financing arm of General Motors Corp., from the $700 billion bank rescue program.
The government will receive preferred shares that pay an 8 percent dividend and warrants to purchase additional shares in return for the money, the department said.
Treasury also said it will lend up to $1 billion to General Motors so that the company can purchase additional equity that GMAC is planning to offer as part of its effort to raise additional capital.
Last week, the Federal Reserve approved GMAC's application to become a bank holding company, which made it eligible to receive money from the financial rescue fund. The Fed's approval was contingent on GMAC raising additional funds.
The assistance is part of a larger government effort to aid the auto industry and is on top of the $17.4 billion in loans the Bush administration agreed to provide to the industry Dec. 19, a Treasury Department official said.
Separately, GMAC said late Monday that it has accepted all the bonds tendered in a debt-for-equity swap that was also part of its capital-raising efforts. The company released few details about the results of the swap.
GMAC "intends to act quickly to resume automotive lending to a broader spectrum of customers," the company said in a statement.
Analysts had speculated that if GMAC didn't obtain financial help it would have to file for bankruptcy protection or shut down, which would be a serious blow to GM's own chances for survival.
General Motors' partial ownership of GMAC has kept the finance arm lending to dealers and car buyers, even as credit from traditional banks has dried up. If GMAC went bankrupt, other institutions would be unlikely to step in to replace the credit lost by GM's dealers and customers.
GM owns 49 percent of GMAC, while the rest is owned by private equity firm Cerberus Capital Management.
As part of its order last week approving GMAC's application for bank-holding company status, the Federal Reserve said GM will reduce its stake to less than 10 percent of the voting and total equity interest of GMAC. 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.
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AP Auto Writer Bree Fowler in New York contributed to this report.


Updated : 2021-03-08 15:30 GMT+08:00