GMAC finishes debt deal to raise cash

NEW YORK (AP) — The financing arm of General Motors Corp. has completed a complicated debt deal that was designed to raise capital and help the auto loan company ride out a historic collapse in auto sales.

The results of the debt exchange, announced Wednesday, fell well short of GMAC’s previously stated goals. But they came a week after the Federal Reserve went ahead and approved GMAC Financial Services’ application for bank-holding status, making it eligible for a portion of the $700 billion bank rescue package.

GMAC spokeswoman Gina Proia said that GMAC is “pleased” with the results of the deal that had asked bondholders to swap debt for cash or securities. She said the deal’s outcome does not change GMAC’s new status as a bank.

GMAC said that bondholders owning $21.2 billion of its debt agreed to the exchange. A total of $17.5 billion, or 59 percent, of the GMAC notes were tendered, along with $3.7 billion, or 39 percent, of notes issued by Residential Capital LLC, GMAC’s home loan unit. GMAC had hoped for 75 percent participation on both offers.

However, Standard & Poor’s Rating Services on Wednesday cut certain debt ratings for both GMAC and ResCap to “Selective Default” after the deal was announced. It said the debt deal paid less than face value to certain bondholders and devalued the bonds that hadn’t been swapped.

S&P said the exchange, along with GMAC’S new bank status, strengthened the troubled company. GMAC, which has been hit this year by the downturns in both the automotive and housing markets, posted losses totaling $5.59 billion for the first three quarters of this year.

“We believe the exchange and the application for bank holding company status illustrate the gravity of the company’s financial position,” the agency said in a report.

Shares of GM closed down 60 cents, or nearly 16 percent, to $3.20 on Wednesday.

Earlier this week, GMAC received $5 billion in aid from the Treasury Department. In addition, the Treasury said it would lend up to $1 billion to GM so that the automaker would be able to buy more equity from GMAC. Those purchases are expected to raise more capital for GMAC.

In exchange for the funding, the government will receive GMAC preferred shares that pay an 8 percent dividend and warrants to purchase additional shares, the department said.

Analysts had speculated that GMAC, which provides financing for both GM dealers and customers as well as home mortgage loans, could have eventually failed if it hadn’t received the federal aid.

Separately, the Treasury on Wednesday said it will decide on a case-by-case basis whether other companies connected to the struggling automotive industry should be provided emergency aid from the government’s bank bailout pot.

GMAC provides 85 percent of loans that GM dealers use to stock car and truck inventory. If GMAC were to fail, those dealers would have a tough time getting financing from other sources.