The Treasury Department said Monday night it would invest $5 billion in GMAC LLC as part of its effort to aid the struggling U.S. auto industry, and would loan as much as $1 billion to General Motors Corp. in connection with the deal.
General Motors owns 49 percent of GMAC, which provides financing for auto dealerships and auto buyers, and has units that make mortgage and commercial loans. GMAC has been hurt by the weak economy and by the collapse of the market for asset-backed securities, such as those created by bundling auto loans.
The Federal Reserve last week granted GMAC its request to convert to a bank holding company, a prerequisite for tapping into the $700 billion Troubled Asset Relief Program passed by Congress in October. The Treasury Department said it would loan money to General Motors so that it could participate in the $1.25 billion rights offering that is part of GMAC's transition to a bank holding company.
The Treasury Department will have the right to exchange the debt for the equity interests that General Motors receives in the restructuring.
The loan is separate from the $17.4 billion in financing that President George W. Bush and Treasury Secretary Henry M. Paulson Jr. announced on Dec. 19.
According to the term sheet for the GMAC deal, the Treasury Department will get preferred stock paying an annual dividend of 8 percent. The rescue plan is contingent on other concessions by General Motors and Cerberus Capital Management LP, which bought 51 percent of GMAC in 2006. Cerberus also is majority owner of Chrysler LLC.
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