New York (HedgeCo.Net) – GMAC LLC, the financing arm of struggling U.S. automaker GM, will receive $6 billion from the federal government.<\/p>\n
The deal entails the treasury purchasing $5 billion in senior preferred equity in the company, while providing GM with a $1 billion loan. This is in addition to the earlier $17.4 billion required to keep both GM and Chrysler afloat.<\/p>\n
The government said the deal comes as “part of a broader program to assist the domestic automotive industry in becoming financially viable.” GMAC will pay an 8 percent dividend as part of the deal, while the Treasury will receive preferred equity via warrants from GMAC, equaling 5 percent of the preferred-stock purchase. These will pay a 9 percent dividend.<\/p>\n
Originally, the Fed’s loan required GMAC to raise new capital through a debt-equity swap that was unsuccessful multiple times. The company had said it would raise $30 billion by converting some of its debt to preferred-stock holdings. As of last week, after multiple extensions, GMAC was still short. However, they have announced amidst the government’s aid, that they have been able to raise the capital.<\/p>\n
GMAC recently changed its status to a bank-holding company, so they could be eligible for federal help and other advantages. The company says they plan on making credit more readily available again to consumers, after a large drop in auto financing due to their own financial woes. The new status also entitles GMAC to receive short-term emergency loans from the government if needed.<\/p>\n
Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net<\/p>\n
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