(Reuters) – GMAC LLC expects to soon announce the results of a debt exchange offer that is key to North America’s largest auto finance company’s capital levels, a spokeswoman said on Sunday.
GMAC, owned by private equity firm Cerberus [CBS.UL] and General Motors, is looking to swap $38 billion of outstanding debt for a smaller amount of new debt, as well as preferred shares and cash, to reduce its debt load and raise capital.
The debt swap deadline expired Friday as planned, spokeswoman Gina Proia said, adding that the company expects to put out the results in “the near term.”
Last week, the U.S. Federal Reserve approved GMAC’s status as a bank, giving the troubled finance company access to the Treasury-run financial bailout package, which may help GMAC avoid bankruptcy and continue financing of dealer and consumer loans for GM vehicles. For details, click on [ID:nN24278654]
The news came soon after the U.S. government agreed to bail out GM and Chrysler LLC with $17.4 billion of emergency loans to provide liquidity and stave off collapse and massive job losses. [ID:nSP155126].
Proia said the bank holding company approval was not contingent on the bond exchange, but the debt swap was contingent on GMAC getting the bank holding company approval.
“Completion of the bond exchange is still very important toward our capital levels,” she said.
GMAC has struggled as the credit crunch raised its borrowing costs and the value of many of its assets plummeted. It has lost $7.9 billion over the last five quarters.
The lender’s difficulties forced it to severely curtail financing for dealerships and for consumer purchases of new GM cars and trucks in recent months. The cutback in financing compounded the sales slump at GM, the No. 1 U.S. automaker, whose sales fell an eye-popping 41 percent in November.
GM dealers have depended on GMAC for financing their inventory and consumer purchases even after GM sold a 51 percent stake in GMAC to Cerberus in 2006 for $7.4 billion. GM retains the remaining 49 percent.
GM and Cerberus will have to trim their stakes to no more than 10 percent and 14.9 percent, respectively, to comply with Fed rules that are meant to prevent companies from using banks to fund their businesses. (Reporting by Paritosh Bansal; editing by Gunna Dickson) (For more M&A news and our DealZone blog, go to www.reuters.com/deals)