GRAND BLANC, Mich. – 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 had to complete the 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.
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.
“The success builds upon itself. The Fed vote sends a strong signal to the remaining bondholders to help them reach a deal,” said Scott Talbott, a financial services lobbyist in Washington, D.C.
Shares of GM surged on Friday, the first day of trading since the Fed’s announcement late Wednesday. Shares rose 41 cents, or nearly 13 percent, to $3.66.
The Fed’s action Wednesday came as GMAC was still struggling to get bondholders to convert 75 percent of their debt into equity of the company. Analysts had speculated that without financial help, GMAC would have had to file for bankruptcy protection or shut down, dealing a serious blow to GM’s own chances for survival. The Fed cited “emergency conditions” in justifying its decision.
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 – earlier this month.
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, 49-percent owned by GM, provides auto financing to GM customers and dealerships.