TORONTO — As parent company GMAC Financial services applies to become a U.S. bank holding company, GMAC of Canada discussed how this move could impact the Canadian industry in a positive way and also shared possible initiatives it may take to hurdle recent credit challenges.

Basically, as a bank holding company, GMAC could provide more auto and mortgage financing thanks to greater flexibility and stability, officials noted. Moreover, GMAC anticipates it would have greater access to funding and capital, as well.

Since GMAC guarantees the outstanding medium term notes, bank lines of credit and demand notes of GMAC of Canada and the companies are closely integrated, GMAC of Canada could benefit, too.

As some may know, the credit crunch has forced GMAC of Canada to become more dependent on bank lines of credit and loans from GMAC and its affiliates.

"Similar to GMAC, the funding strategy and liquidity position of GMACCL have been materially adversely affected by the ongoing stress in the credit markets that began in the middle of 2007 and reached unprecedented levels during recent months," officials explained.

"GMACCL's access to liquidity has been, and continues to be significantly reduced as many traditional sources of funding have become substantially less available," they continued.

In response, GMAC of Canada has also taken steps to diversify its funding sources throughout the year.

Back in June, the company was granted eligibility as a borrower as part of GMAC's $11.4 billion (U.S.) combined secured facility in the U.S. and Canada.

Also, GMACCL has garnered funding through a substantial private committed arraignment in Canada, as well.

Additionally, GMAC of Canada has utilized cross-border funding from the States and had its first lease financing transaction in April, which provided $1.6 billion (CAD) in liquidity.

That being said, officials indicated: "To the extent conditions in the credit markets do not improve, further reliance on funding by GMAC and its affiliates may be necessary.

"Without continued support from GMAC, funding constraints could have a material adverse effect on GMACCL's liquidity, operations and financial position," they noted.

As stated in the quarterly report on Sept. 30, GMAC of Canada has $7.7 billion (CAD) of debt maturing within the next 12 months, $3.8 billion of which is unsecured debt and $3.9 billion is secured.

Its long-term debt is $11 billion (CAD), with $1.7 billion being unsecured and $9.3 billion secured. The company's total assets were $22.5 billion (CAD).

"GMACCL's business continues to be affected by adverse market conditions, and has led it to take several actions to manage resources in this volatile environment," executives explained.

Some of these actions include aligning originations with available committed funding sources and further streamlining its operations.

"In view of GMACCL's ongoing financing requirements and GMACCL's integration with its affiliates, GMACCL has been, and may continue to be, affected by changes in the business, operations and financial condition of GMAC and the GMAC group of companies," executives pointed out.

What's more, the company shares many customers with General Motors, GM of Canada dealers and other GM-related entities. So, any struggles that GM faces as an automaker are likely to spill over and impact GMAC of Canada.

Also, GMAC indicated that it may make additional moves to boost capital or improve liquidity, depending on whether or not the offers, its applications to become a U.S. bank holding company or to participate in the related capital purchase program are successful.

These steps could include repurchasing or redeeming some of its outstanding debt or commencing a tender or exchange offer for its outstanding notes that are not subject to GMAC or Residential Capital offers.

Likewise, GMAC of Canada indicated it may do something similar, but issued no guarantee of what its plans may be.

"There can be no assurances as to when or if any additional actions described above with respect to improving GMACCL's or GMAC's liquidity position would be taken," officials explained.

"GMACCL's outstanding medium term notes and demand notes are obligations of GMACCL, guaranteed by GMAC, and the likelihood that investors will receive payments owing to them in connection with the notes will be dependent upon the financial health and creditworthiness of GMACCL or, in respect of the guarantee, GMAC," they added.