Wednesday, GMAC Financial Services, the financial services arm of General Motors (GM), announced it closed the private exchange offers and cash tender offers to purchase and/or exchange certain of its and its subsidiaries' outstanding notes. The company also closed its private exchange offer of Residential Capital, LLC's outstanding notes. The cash elections for each of the GMAC offers and the ResCap offers were oversubscribed.
The New-York Based company reported that, through the GMAC offers, an aggregate of approximately $17.5 billion or 59% of the outstanding GMAC old notes were validly tendered and accepted.
Pursuant to the redemption or exchange of the old notes, the company would issue about $11.9 billion aggregate principal amount of new GMAC senior guaranteed notes of various series and about $2.6 billion aggregate liquidation preference of new GMAC cumulative perpetual preferred stock.
In addition, the company redeemed and/or exchanged about $3.7 billion in aggregate principal amount or 39% of the outstanding Residential Capital old notes, through the Residential Capital offer.
As a result, the company would issue about $688 million aggregate principal amount of new GMAC 7.50% senior notes due 2013 and approximately $483 million aggregate principal amount of new GMAC 8.00% subordinated notes due 2018.
GMAC is 49% owned by General Motors and 51% owned by private equity firm Cerberus Capital Management LP. GMAC has been the primary source of financing to customers and dealerships seeking to purchase or lease GM vehicles. The company provides financing to customers as well as dealers of GM and also provides home mortgage loans through its Residential Capital LLC unit.
Each eligible holder is entitled to have approximately 23.2% of the amount of old notes the company tendered accepted for cash. The rest of the old notes that were not accepted for purchase for cash will be exchanged into new securities in the amount determined pursuant to the applicable new securities exchange ratios, as if such holder had made a new securities election with respect to such balance of old notes.
Eligible holders who made a cash election in the ResCap offers will have approximately 47.8% of the amount of old notes it tendered accepted for cash, and the balance of old notes each such holder tendered that was not accepted for purchase for cash will be exchanged into new securities, in the amount determined pursuant to the applicable new securities exchange ratios, as if such holder had made a new securities election with respect to such balance of old notes.
To determine the consideration paid, the principal amounts of old notes denominated in Euros and Sterling have been converted to U.S. dollars at currency exchange rates set on December 24, 2008 of $1.3964/EUR and $1.4673/GBP.
On December 25, the U.S. Federal Reserve approved GMAC's application to become a bank holding company. The approval paved the way for the auto lender to qualify for a part of the $700 billion financial rescue package announced by the U.S. government and also receive emergency loans directly from the Federal Reserve.
Earlier in the week, the U.S. Treasury Department, under the Troubled Asset Relief Program (TARP), agreed to purchase a $5 billion stake in GMAC. The Treasury said it will buy $5 billion in senior preferred equity with an 8% dividend from GMAC. The Treasury also agreed to lend another $1 billion to General Motors to enable the automaker to take part in a rights offering at GMAC. The $1 billion for GM is in addition to the assistance previously announced for GM on December 19. The loan could be exchanged into equity stake in GMAC being acquired by GM through the rights offering.
In Mid-December, GMAC had warned that that it was close to abandoning its efforts to become a bank holding company. The financer said at that time that not enough bondholders had agreed to its $30 billion exchange offer, and if more does not, then it would not be able to make the transition to bank holding company. The company said it had raised around $8.3 billion, far short of the $30 billion in regulatory capital required by the Federal Reserve to become a bank holding company.
At that time, less than 25% of bondholders had agreed to the exchange, while GMAC needed around 75% of bondholders to agree to participate in order for the plan to work.
GMAC has total consolidated assets of about $211.3 billion. GMAC bank has total consolidated assets of about $33 billion and controls deposits of approximately $17 billion.
The Federal Reserve's move to provide aid to GMAC is an extension of the federal bailout program that was initially designed to shore up ailing banks. However, as the credit crunch intensified, the program was expanded to include credit card companies, insurers and the automakers themselves.
The recent credit crisis cornered companies including investment banks Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) as well as credit card company American Express Co. (AXP) to change their operating status to bank holding companies so that large deposit bases could be created to assist funding their operations and to provide insulation from the fall-out of massive investment losses.
In mid-December, commercial finance company CIT Group Inc. (CIT) said that the board of governors of the Federal Reserve System approved its proposal to become a bank holding company.
GM is currently trading at $3.56, down $0.24 or 6.32%.
For comments and feedback: editorial@rttnews.com