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GMAC Stays Silent on Missed Deadline of Debt Swap Deal

GMAC Financial Services remained quiet on Monday after it missed a crucial deadline last week in a process to transform the finance arm into a bank holding company, according to the Associated Press.

by Staff
December 29, 2008
2 min to read


GMAC Financial Services remained quiet on Monday after it missed a crucial deadline last week in a process to transform the finance arm into a bank holding company, according to the Associated Press.


The deadline established by the Federal Reserve required GMAC, the finance arm of General Motors Corp., to raise enough capital through a complicated debt-to-equity exchange in order to become a bank holding company. That status would allow GMAC to gain access to the $700 billion federal bailout package and support the company’s loans to car buyers and GM dealerships.

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The Fed approved GMAC’s application to become a bank holding company on Dec. 24, but the approval was contingent on the finance arm’s ability to complete the exchange. The Fed has yet to officially extended the deadline, and a GMAC spokeswoman said the company has not issued details on how and when it will complete the debt exchange.


“The exchange did expire. We plan to issue final results in the near term,” said GMAC spokeswoman Beth Coggins.


To meet the Fed’s requirement GMAC needs to raise nearly $30 billion in capital, a majority of which would come from the debt exchange. The Fed also stipulated that $2 billion of total capital come from new equity. GMAC has received a commitment of $750 million from GM and Cerberus Capital Management. However, it is 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.


As a bank holding company, GMAC could request up to $6.3 billion from the $700 billion bank bailout package, estimated CreditSights analyst Richard Hoffman. GMAC has not disclosed how much money it would request from the federal government’s bailout fund.


GMAC’s inability to provide financing to car buyers and dealers could hurt parent company General Motors and its new vehicle sales. More than half of new vehicle sales involve loans obtained at a dealership through financing arms like GMAC or banks, said Tom Libby, an auto industry analyst at J.D. Power and Associates.

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“If this source of credit would diminish, it would greatly affect sales. That’s one reason for the dramatic decline in new vehicle sales in recent months,” he said.


Edmunds.com predicted that GM sales fell 39.3 percent in December compared to the year-ago period. The automotive information Website also said the domestic automaker’s market share is expected to be 22.8 percent of new-vehicle sales, down from 23.1 percent a year-ago.


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