NEW YORK – The financing arm of General Motors Corp. completed a complicated debt deal that fell short of the goal it set for the amount of fresh capital needed to help the auto loan company ride out a historic collapse in auto sales.
The results of the debt exchange, announced Wednesday, came a week after the Federal Reserve approved GMAC Financial Services' application for bank holding status, making it eligible for a portion of the $700 billion bank rescue package.
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.
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.
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 fell 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.
In deciding whether to aid others, the department said it will consider "the importance of the institution to production by, or financing of, the American automotive industry," and whether a major disruption of the companies' operations would likely hurt employment and the national economy.
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.
Company officials had said that becoming a bank was GMAC's best hope for survival. In Securities Exchange Commission filings, GMAC said it needed to show that it had $30 billion in capital in order for the Fed to approve its application to become a bank holding company. GMAC also said in the filings that it hoped to raise a significant part of that through the debt-swap offers.
GMAC's Proia declined to reveal the company's current total amount of capital. GMAC ended the third quarter with about $9 billion, the most recent figure available.
Proia said the Fed was aware of the status of GMAC's debt-exchange when it approved the company's request to become a bank holding company on Dec. 24.
The Fed, for its part, didn't mention a specific capital threshold when granting GMAC bank status last week, only saying in its order that "The board has considered GMAC's successful efforts to raise additional capital and that, as a result, GMAC will be well capitalized on completion of the proposal."
Another part of GMAC's equity requirement included an earlier 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 GM and private-equity firm Cerberus Capital Management LP, which has owned the majority stake in GMAC, although that stake will have to be reduced now that GMAC is a bank holding company.
A spokesman for Cerberus declined comment on the debt deal Wednesday. A GM spokeswoman did not immediately return a call for comment.
It's unclear whether that funding would come from the $17.4 billion in bridge loans the U.S. Treasury granted GM and Chrysler LLC — which is owned by Cerberus — in December after both automakers said they could soon run out of cash and fail without federal aid.