GM, GMAC Receive Money from US Treasury

The United States Treasury Department today announced that it decided to pay nearly $5 billion for senior preferred equity, including an 8 percent dividend, from GMAC LLC, the financial division jointly owned by Cerberus Capital Management LP and General Motors. The Treasure says the agreement is a “part of a broader program to assist the domestic automotive industry in becoming financially viable” and explains that GMAC “will issue warrants to Treasure in the form of additional preferred equity in an amount equal to 5% of the preferred stock purchase that will pay a 9% dividend if exercised.”

“GMAC Financial Services today announced that it has sold $5.0 billion of GMAC's preferred membership interests and warrants to the U.S. Department of the Treasury as a participant in the Troubled Assets Relief Program established under the Emergency Economic Stabilization Act of 2008. The sale was completed today,” GMAC said in a press statement.

But more importantly, the United States Treasury has also lent $1 billion to General Motors, “so that GM can participate in a rights offering at GMAC in support of GMAC's reorganization as a bank holding company.”

“This commitment is in addition to the assistance previously announced for GM on Dec. 19. This loan will be exchangeable at any time, at Treasury's option, into the GMAC equity interests being acquired by GM in the rights offering,” the Treasury explained in a statement for the press.

The Federal Reserve Board approved on December 24 GMAC's request to become a bank holding company which, according to the GMAC statement, allows the firm to provide financing to both consumers and businesses. “In particular, the company intends to act quickly to resume automotive lending to a broader spectrum of customers to support the availability of credit to consumers and businesses for the purchase of automobiles,” it said.