Bailout Watch 307: Treasury Rescues GMAC With $5b "Investment," Gives GM an "Extra" $1b

CNNMoney is reporting that the U.S. Treasury will “invest” $5b in formerly bankruptcy-bound lender GMAC. In return, “GMAC will issue warrants to Treasury in the form of additional preferred equity in an amount equal to 5% of the preferred stock purchase that will pay a 9% dividend if exercised.” Presumably, the treasury provided your tax money after GMAC failed to convince enough of its bondholders to swap debt-for-equity to qualify for bank status (under the Fed’s “emergency powers”). Now that the Treasury has stepped in, GMAC can make the morph and hoover $6b plus from the Troubled Asset Relief Program and $17.5b in federally guaranteed debt. Folks, that little package right there comes to $28.8b. Oh wait; the Treasury has decided to “lend an additional $1 billion to GM so it could invest in GMAC as the financing company reorganizes.” So if you add GM’s $14.4b, Chrysler’s $4b, GMAC’s $28.8 and the Department of Energy’s $25b retooling loans, you end up with a $72.2b Detroit bailout “plan.” Way hey! GMAC press release after the jump.

NEW YORK, Dec. 29 / PRNewswire/ — GMAC Financial Services today announced that it has sold $5.0 billion of GMAC’s preferred membership interests and warrants to the U.S. Department of the Treasury as a participant in the Troubled Assets Relief Program established under the Emergency Economic Stabilization Act of 2008. The sale was completed today.

GMAC also announced that General Motors Corp. (GM) and an affiliate of Cerberus Capital Management contributed to GMAC the $750 million subordinated participations in the $3.5 billion senior secured credit facility, as amended, between GMAC and Residential Capital, LLC in exchange for new common equity of GMAC. In addition, GMAC announced that GM and an affiliate of Cerberus Capital Management entered into agreements to purchase $1.25 billion of new common equity. The U.S. Treasury and GM intend to enter into an agreement for the Treasury to fund GM’s share of the new common equity.

GMAC also announced that the conditions to its previously announced separate private exchange offers and cash tender offers have been satisfied and that GMAC has accepted all of the validly tendered GMAC old notes and ResCap old notes. The GMAC offers and the ResCap offers are expected to settle promptly.

GMAC received approval of its bank holding company application from the U.S. Federal Reserve Board on Dec. 24, 2008. As a bank holding company, GMAC has improved access to funding to provide financing to consumers and businesses. In particular, the company intends to act quickly to resume automotive lending to a broader spectrum of customers to support the availability of credit to consumers and businesses for the purchase of automobiles.