GMAC was required to clear final hurdle for bailout funds

GMAC’s goal is to attain $30 billion in capital, mostly from exchange of debt.

GRAND BLANC, Mich. (AP) — The financing arm of General Motors Corp. had until midnight Friday to clear a final hurdle in its quest to become a bank holding company, even though it already received the Federal Reserve’s stamp of approval earlier this week.

GMAC Financial Services LLC was required to complete a complicated debt-for-equity exchange by 11:59 p.m. EST. The effort to raise $30 billion in equity from bondholders was helped along late Wednesday by the Fed’s decision making the ailing auto and home loan provider eligible to access part of the government’s $700 billion bank rescue fund.

GMAC wouldn’t say Friday how close the company was to completing the exchange. Yet both actions — completion of the debt exchange and the Fed’s acceptance of GMAC as a bank holding company — were tied to each other.

The Federal Reserve apparently needed to see that the bondholders were willing to inject more capital into GMAC, a critical requirement to get bank holding status. GMAC bondholders needed reassurance that the Fed would approve GMAC’s application to qualify for federal aid.

Shares of GM surged Friday, the first day of trading since the Fed’s announcement late Wednesday. Shares rose 41 cents, or nearly 13 percent, to $3.66.

GMAC’s goal is to reach $30 billion in capital, the majority of which would come from the exchange of debt. Another part of the equity requirement included a demand from the Fed that $2 billion of the total come from new equity. So far, GMAC has received a commitment of $750 million from its parents GM and Cerberus Capital Management. It’s unclear whether that funding would come from the bridge loans the U.S. Treasury granted GM and Chrysler LLC — which is owned by Cerberus.

Becoming a bank holding company would qualify GMAC to access the government’s bank rescue funds, and support GMAC loans to car buyers and GM dealerships.

GMAC has not said publicly how much it was requesting from the $700 billion bank bailout fund. CreditSights analyst Richard Hoffman estimated in a research note Friday that GMAC “could have applied for up to about $6.3 billion.”

GMAC, which is 49-percent owned by GM, provides auto financing to GM customers and dealerships.

The Fed order says GM will reduce its stake to less than 10 percent of the voting and total equity interest of GMAC. GM’s remaining equity interest in GMAC will be transferred to an independent government-accepted trustee who must dispose of the equity held in the trust within three years.

Cerberus, which led an investment group that bought a 51-percent stake in GMAC from the automaker for $14 billion in 2006, will reduce its stake in GMAC to no more than 33 percent of the lender’s total equity.