GMAC said on Wednesday that it had completed a refinancing package worth more than $60 billion aimed at improving the liquidity of its struggling subsidiary, the mortgage lender Residential Capital (ResCap).
The package includes refinancing outstanding, unsecured debt with new, secured bonds, as well as renewing bank credit lines and new capital injections from GMAC and private equity firm Cerberus Capital Management LP, which owns 51 per cent of Detroit-based GMAC.
"This refinancing is expected to provide GMAC and ResCap with the important liquidity and financial resources to execute our business plan," Sam Ramsey, chief risk officer at GMAC, said in a statement
As part of the refinancing, GMAC obtained a new $11.4 billion secured, three-year revolving credit facility, and a renewed a $10 billion, one-year commercial paper back-up facility.
ResCap also extended "substantially all" of its bilateral bank facility, totaling around $11.6 billion, and obtained a new $2.5 billion whole loan repurchase facility. In addition, the company completed tenders and exchanges of its bonds, totaling $14 billion.
As part of the overall plan, ResCap offered to exchange as much as the $14 billion in debt to extend the dates on which the notes came due. Bondholders participating in the exchange offer will get new debt at higher interest rates, which ResCap will have longer to pay back.
Additionally, GMAC provided a $3.5 billion credit line to ResCap, which includes $750 million from GM and Cerberus. GM and Cerberus would take the first loss if ResCap defaulted.
As the mortgage lending market began deteriorating in mid-2007, ResCap posted large losses. It continued to struggle, losing $859 million in the first quarter. That put it in danger of failing to meet financial obligations.
ResCap said on Tuesday it needed about $2 billion in cash by the end of June to meet liquidity demands, according to a regulatory filing with the Securities and Exchange Commission. It previously estimated it needed just $600 million by the end of the month.
Founded in 1919 as a wholly owned subsidiary of General Motors Corp., GMAC (or GMAC Financial Services), formerly known as General Motors Acceptance Corporation, was the wholly owned financial services arm of General Motors, till November 2006 when GM sold a 51-per cent controlling interest in GMAC to a consortium of investors led by Cerberus Capital Management, L.P., a private investment firm, and included Citigroup Inc., Aozora Bank Ltd. and a subsidiary of The PNC Financial Services Group, Inc.
GMAC Financial Services provide a suite of financial programs including automotive financing, insurance and mortgage operations in approximately 40 countries around the world.
GMAC also operates Nuvell Financial Services within its automotive financing division. While the main GMAC specializes in the financing of new and certified pre-owned GM vehicles, Nuvell is the sub-prime lending arm of GMAC for GM associated dealerships.
Nuvell also operates National Auto Finance which provides non-GM dealerships access to an additional sub-prime lending source, and recently a prime product. Its other businesses include Residential Capital Holding, an umbrella company for GMAC's residential mortgage business, and GMAC Home Services, a real estate services subsidiary.