GMAC Hits Big Roadblock In Bid to Become a Bank
GMAC, the troubled auto and mortgage lender partly owned by General Motors, warned that it may not have enough capital to proceed with its application to become a bank holding company.
The setback could be yet another blow to the battered auto industry, which is seeking a $15 billion bailout from Congress.
GMAC , which provides loans to buyers of GM cars and funds dealer inventories, has had trouble raising capital because of the credit crunch. The slump in the auto and housing markets also has hammered its earnings.
GMAC filed to become a bankholding company last month so it could apply for funds from the $700 billion Wall Street bailout fund known as the Troubled Asset Relief Program, or TARP.
But according to people familiar with the situation, GMAC needs to raise $20 million beyond what it currently has in order to meet minimum regulatory requirements.
The company is trying to raise capital through an exchange offer with its current bondholders, but it doesn't have the support of the 75 percent of bondholders needed to do the deal. GMAC said it extended the exchange offer until Dec. 12 to see if more bondholders would agree to the offer.
Private equity firm Cerberus Capital Management owns 51 percent of Detroit -based GMAC and automaker General Motors owns 49 percent. Cerberus also owns Chrysler.
GMAC is offering cash for about $38 billion of its outstanding debt and its mortgage subsidiary, Residential Capital, to increase capital .The debt exchange is expected to increase the company's capital levels while reducing its outstanding debt—a plan GMAC hopes will support its application to become a bank.
GMAC said that to date about $6.3 billion, or 22 percent, of its outstanding old notes have been tendered and $2.0 billion, or 21 percent, of outstanding ResCap notes have been tendered in the offer.
GMAC follows other financial, nonbank companies such as credit-card company American Express and commercial lender CIT Group in applying for bank status and Treasury funds.
GMAC, which has been the primary lender to GM customers but has curbed loans to borrowers who do not have good credit, lost $2.52 billion in the third quarter, its fifth straight quarterly loss.
—Reuters contributed to this report