AUBURN HILLS, Mich. — Just after GMAC reported that it is receiving $7.5 billion from the U.S. Treasury, Chrysler's vice chairman and president announced that about 90 percent of the automaker's dealers are now activated to conduct retail business via GMAC.

Jim Press, Chrysler Group vice chairman and president, stated, "With nearly 90 percent of our U.S. dealers now activated for retail business through GMAC Financial Services, we're very pleased about the U.S. Department of the Treasury's announcement yesterday to invest in GMAC to originate new loans to Chrysler dealers and consumers.

"As Chrysler transitions our dealer network, we are also very pleased with the speed and professionalism that GMAC Financial Services has demonstrated to Chrysler and our dealers," he continued. "We look forward to a successful partnership that benefits both our consumers and dealers."

Earlier in the month, Chrysler signed a financial services agreement with GMAC Financial Services to provide the automotive financing products and services to Chrysler's dealers and customers.

GMAC Receives Billions from Treasury

Last week, GMAC Financial Services announced several key actions designed to improve the company's capital position and access to liquidity.

The actions include a $7.5 billion capital investment from the U.S. Department of the Treasury, approval by the Federal Deposit Insurance Corp. to participate in the Temporary Liquidity Guarantee Program (TLGP), and an expanded exemption granted by the Federal Reserve to originate GM-related assets at GMAC's bank, recently renamed Ally Bank.

GMAC also indicated that it has reconstituted its board of directors and named two appointees from the U.S. Treasury, with three independent directors to be promptly named by the board.

"These actions represent another major step in stabilizing and strengthening GMAC," said Alvaro de Molina, GMAC chief executive officer. "Much like last year, 2009 is proving to be a time of landmark actions for GMAC, executing the Chrysler agreement, launching a new brand for our bank and now taking a meaningful step forward in permanently improving our access to cost-effective funding."

Capital Investment

In connection with the government's capital investment, GMAC has sold $7.5 billion of mandatorily convertible preferred membership interests and warrants to the U.S. Treasury.

The investment included $4 billion of MCP related to GMAC's agreement with Chrysler to provide automotive financing to Chrysler dealers and customers and $3.5 billion of MCP toward the Supervisory Capital Assessment Program (S-CAP) requirement.

The U.S. Treasury immediately exercised the warrants and GMAC issued an additional $375 million of MCP.

GMAC previously announced an agreement with Chrysler to provide automotive finance products and services to Chrysler dealers and customers. The agreement was approved by the U.S. Bankruptcy Court on May 12. GMAC will begin offering wholesale and retail credit to Chrysler dealers and customers immediately.

In order to ensure an orderly transition of wholesale financing activities, GMAC said it has signed a cooperation agreement with Chrysler Financial Services Americas LLC.

GMAC has also entered into a transition support agreement with Chrysler LLC and the U.S. Treasury to aid in managing the risks related to expeditiously extending credit to Chrysler dealers and customers. The agreement provides GMAC with credit support for certain losses that may be incurred during the transition period, which allows time for GMAC to evaluate the creditworthiness of each Chrysler dealer.

As previously disclosed under the S-CAP program, GMAC is required to raise $11.5 billion of Tier 1 common or contingent common capital, $9.1 billion of which must be new Tier 1 capital. The $3.5 billion investment by the U.S. Treasury is new capital for the company toward this program and reduces the level of new capital required to $5.6 billion.

Consistent with the S-CAP program requirements, GMAC said it intends to submit a Capital Plan to the Federal Reserve Bank of Chicago by June 8 with respect to the remaining capital required. While the U.S. Treasury has indicated that it may be willing to provide additional new capital, GMAC will evaluate other alternatives to meet its capital requirements.

The MCP issued to the U.S. Treasury has an annual distribution rate of 9 percent payable quarterly. These interests mandatorily convert to common membership interests after seven years and may be converted in advance of that time by GMAC with the approval of the Federal Reserve if such conversion would not result in the U.S. Treasury owning in excess of 49 percent of GMAC's common membership interests.

GMAC may only convert additional mandatorily convertible membership interests to common membership interests if certain other conditions are met. The MCP is also convertible by the U.S. Treasury upon the occurrence of certain events.

GMAC also discussed receiving approval to participate in the FDIC's TLGP for up to $7.4 billion, which officials said would permit the company to issue new FDIC-guaranteed debt.

In connection with receiving FDIC approval, GMAC said it is developing a funding plan which it has committed to provide to the FDIC and the Federal Reserve. The plan will reflect GMAC's management of Ally Bank's funding and deposit costs with a focus on diversifying funding sources and reducing the bank's overall cost of deposit funding.

GMAC and the bank have also committed to maintain bank capital at a level well above the regulatory minimums.

Ally Bank Exemption

GMAC also reported that it has received an expanded exemption from the Federal Reserve to allow Ally Bank, formerly GMAC Bank, to originate a limited amount of GM-related retail and wholesale assets, subject to certain conditions.

Previously, GMAC was more limited in the GM-related assets that could be originated in the bank due to section 23A of the Federal Reserve Act.

"Providing relief on these restrictions will enable GMAC to have more funding available for a majority of its automotive finance assets, which provides a sustainable long-term funding channel for the business," officials said. "The extension of credit to Chrysler dealers and customers is not subject to the section 23A restriction."

As many already know, GMAC recently launched Ally Bank, a new brand for its U.S. bank that represents an improved banking experience. The new brand is part of an effort to broaden and expand the company's customer base at the bank.

Board of Directors

In connection with GMAC's approval to become a bank holding company, GMAC was required to reconstitute its board of directors. The new board will now consist of nine directors, four of whom have been named, including two by the U.S. Treasury and two current directors.

Three additional independent directors have been selected and will be promptly appointed by the new board. The two appointees of the U.S. Treasury are Robert Blakely and Kim Fennebresque. GMAC CEO de Molina will remain on the board along with Stephen Feinberg as the Cerberus appointee. Two additional independent directors will be named at a later date.

In connection with the previously announced GMAC governance changes, the following independent and GMAC management directors on the board resigned, effective immediately: T.K. Duggan, Douglas Hirsch, Robert Hull, Samuel Ramsey and Robert Scully.