GMAC rushes to conclude bond buyback and avoid bankruptcy

Filed under: Government/Legal, GM, Earnings/Financials

GM doesn't just have its eye on auto bailout funds -- its GMAC division (of which it owns 49%) is looking for cash from among the $700 billion pledged in the Wall Street bailout. Through the end of next year, GMAC has roughly $12 billion in bonds maturing. But to have any chance at getting Wall Street funds to address those maturing bonds, GMAC wants to become a bank holding company. And to do that, it must raise $30 billion, with $2 billion of that tapped from new sources.

GMAC is looking for 75% of its bondholders to participate in a bond buyback, whereby a bondholder would return bonds worth $1,000 and get about $800 worth of bonds with a higher dividend in return. If it gets participation from 75% of it's bondholders, that will give it $28.5 billion, which it can add to $750 million GMAC says has been pledged by shareholders as part of the $2 billion requirement. That's not quite $30 billion, but closer is better than nothing.

The problem is that, for the moment, GMAC has only 25% participation. GMAC said it had a fresh round of bondholders willing to swap, but didn't make it clear whether that would get it to 75%. If it doesn't get the financing to become a bank holding company, GMAC would likely need to declare bankruptcy. And if that happens? Well, GMAC provides inventory financing for 80% of GM vehicles worldwide. Without that source of financing, said Martin NeSmith,"There's so many dealers on the edge, if GMAC goes out of business 30 to 40 percent of dealers won't be able to get financing from anywhere else." And that spells even more trouble -- and bankruptcies -- for everyone.

[Source: Automotive News - Sub. Req.]

GMAC rushes to conclude bond buyback and avoid bankruptcy originally appeared on Autoblog on Tue, 16 Dec 2008 09:00:00 EST. Please see our terms for use of feeds.

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