×

Northern Rock Is Acquisition Target of GMAC: Sources

Distressed UK mortgage lender Northern Rockis an acquisition target of U.S. finance company GMAC, sources told Reuters.

Earlier on Wednesday, GMAC said it was considering the purchase of a "large non-U.S. mortgage lending institution," but did not identify the target.

GMAC is 51 percent owned by a consortium led by private equity firm Cerberus. On Tuesday, another source told Reuters that Cerberus has submitted a bid for Northern Rock.

GMAC, 49 percent owned by General Motors, would not elaborate on its statement. Cerberus declined to comment.

Considers Selling Parts of Mortgage Unit

GMAC said Wednesday it was exploring the sale of parts of its troubled mortgage-lending arm, Residential Capital (ResCap), and the purchase of an international lending institution.

Separately, ResCap said GMAC management plans to recommend a new capital infusion to ResCap.

GMAC said it has expressed interest in buying a large non-U.S. mortgage lending institution. Its goal would be to combine ResCap's local mortgage business with the acquired institution. GMAC did not disclose the name of the lender.

Shares of GM rose 0.38 percent to $26.39 Wednesday after gaining as much as 4 percent earlier in the session. GM was the only Dow Jones Industrial Average component to finish the day higher.

Earlier this month, ResCap posted a $2.6 billion loss for the third quarter, which led to a $1.6 billion loss at GMAC. Buyout firm Cerberus owns 51 percent of GMAC.

Like many lenders, ResCap has struggled as falling home values and rising interest rates have made it tougher for many homeowners to keep up with mortgage payments.

During the third quarter, GMAC injected $1 billion into ResCap. Analysts and investors have questioned how long GMAC will be willing to support the mortgage lender.

GMAC and ResCap said they continue to explore options to improve ResCap's liquidity, such as acquisitions, asset sales, alliances and joint ventures.

The companies said they had hired advisers to explore the sale of certain parts of ResCap's operations, but there are no binding contracts or agreements in place.

GMAC said it submitted a second-round non-binding indication of interest to buy a non-U.S. mortgage lender, but other parties are pursuing the same acquisition.

ResCap said it had launched a cash tender offer to buy up to $750 million of its debt. The purchase of the notes at a discount, and the retirement of the debt, would increase ResCap's income in the fourth quarter, it said.

Several of ResCap's credit facilities contain a financial covenant requiring ResCap to maintain a minimum consolidated tangible net worth at the end of each fiscal quarter.

As of September 30, ResCap had net worth of $6.2 billion, which was above the $5.4 billion required by its lending agreements.