GMAC Seeks Further Government Aid, Comes to Market with FDIC-Backed Bond Offering
DETROIT — In addition to the Treasury Department confirming that GMAC Financial Services is looking for a third round of government aid, the bank announced Wednesday that it is offering $2.9 billion of FDIC-guaranteed three-year bonds.
Basically, officials said the bond offering is designed to further strengthen GMAC's liquidity position and support the company's ability to extend credit to consumers and businesses, including dealers.
"With this offering, GMAC has utilized its remaining capacity under the FDIC's Temporary Liquidity Guarantee Program," officials explained. "The company received approval to participate in the TLGP in May 2009 for up to $7.4 billion and initially accessed the program with a $4.5 billion offering in June 2009."
Due to the FDIC guarantee, the bonds will be rated "AAA" despite the fact the company has a junk credit rating.
Officials pointed out that the notes and FDIC guarantee have not been, and are not required to be, registered with the Securities and Exchange Commission.
Additionally, apparently GMAC is also in discussions with the Treasury Department for more taxpayer support.
Earlier this year, the Treasury decided that banks must undergo stress tests and ultimately said that that GMAC needed to raise $11.5 billion in more capital to support its business. While most other banks that the Treasury also required to raise capital were able to turn to private investors, apparently GMAC has not been successful in this regard. Thus the company has returned to the government for more support.
Since dealers from both Chrysler and General Motors depend on GMAC for dealer floor planning, as well as other services, it would be an interesting twist if the government did not offer further financial support.