New York (HedgeCo.Net) – GMAC LLC, the financing arm of struggling U.S. automaker GM, will receive $6 billion from the federal government.

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.

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.

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.

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.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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