GMAC Waits For FDIC Green Light On Crucial Funds
14 April 2009 - 11:00PM
Dow Jones News
More than three months after turning itself into a bank, GMAC
LLC is still waiting for the green light from regulators to issue
debt crucial to its funding plan.
GMAC, the former financing arm of General Motors Corp. (GM), is
seeking the go-ahead from the Federal Deposit Insurance Corp. to
sell cheaply priced debt insured by the FDIC as part the Temporary
Liquidity Guarantee Program.
This program has allowed an array of financial institutions,
ranging from Citigroup Inc. (C) to General Electric Corp.'s (GE)
General Electric Capital Corp., to raise financing when they were
otherwise shut out from repaying or refinancing debt as a result of
the credit crisis. Qualifying financial firms have so far raised
$238.2 billion of government-backed bonds since this program was
announced in October, according to data provider Dealogic.
GMAC has $30.6 billion of debt maturing in 2009, including $11.8
billion of unsecured debt. Gaining access to cheap capital through
the TLGP was a major driving force behind the cash-strapped
lender's bank registration in December.
"Despite becoming a bank, GMAC is squeezed for capital," says
Mark Wasden, an analyst at Moody's Investors Service. GMAC
unsecured debt is rated the lowest of 19 credit rankings by
Moody's, just a step up from default. Moody's outlook on this
rating suggests it could be bumped up.
The ability to issue FDIC-backed debt would "represent real
liquidity. GMAC needs that today," says Wasden. The lender could
raise up to $12 billion through TLGP, according to Moody's initial
estimates using FDIC guidelines. "It's a potentially sizable
amount," says Wasden. The amount GMAC may issue could differ based
on FDIC's decision.
"We have an application pending with the FDIC," says Gina Proia,
a GMAC spokeswoman. "We are in the process of responding to
requests for additional information."
An FDIC spokeswoman said GMAC's application "is currently under
review," while declining to comment on specific details.
To be sure, GMAC does have access to other forms of federal
funding: It got $5 billion under the U.S. Treasury's Troubled Asset
Relief Program. GMAC Bank, as of the end of 2008, had used up $10
million of a $4 billion credit line from the Federal Reserve. The
lender is also exploring ways to tap the government's Term
Asset-Backed Securities Loan Facility, or TALF, aimed at reviving
lending to consumers.
In addition, deposits at GMAC Bank grew by one-third to $19.2
billion, as of Dec. 31, 2008, compared to a year earlier. The
lender also shored up its capital base through a $38 billion debt
exchange in November.
But concerns persist around GMAC's finances because of
continuing potential losses at its auto finance and mortgage units;
its hefty debt burden; restrictions on its lending practices due to
its new status as a bank; and debt and capital levels the lender
must comply with as a bank.
GMAC is jointly owned by GM and an investor group led by
private-equity firm Cerberus Capital Management LP. The auto maker
and the investor group will significantly scale back their
ownership in GMAC as a condition of the lender becoming a
bank-holding company.
For the fourth quarter, GMAC posted net income of $7.46 billion,
aided by a $11.4 billion gain from the bond exchange it commenced
in November. Its quarterly profit stanched five straight quarters
of losses totaling $7.9 billion. But without the gain from this
debt restructuring, GMAC's auto finance unit posted a
fourth-quarter $1.31 billion loss, while its mortgage unit bled
$1.7 billion.
GMAC is yet to report first quarter results.
Without adequate capital, GMAC has little choice but to further
whittle down its lending operations. It will have to "shrink its
business at a time it's supposed to be diversifying and growing,"
says Wasden at Moody's.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729;
aparajita.saha-bubna@dowjones.com