Cerberus portfolio company GMAC Financial Services is in discussions to become a bank holding company, which would qualify it to access funds from the US government’s $250 billion bank bailout.
As a bank holding company, GMAC would obtain “increased flexibility and stability” as well as “expanded opportunities for funding and for access to capital”, the company said in a statement.
In order to meet regulatory requirements necessary for bank holding company status, GMAC plans to make a private offer to exchange its existing debt for a reduced amount of new debt.
“It is a win-win where the holders of the old debt receive new debt more valuable than the old debt they give up because the higher price of the new debt more than offsets the lower face amount and the company benefits because they owe less money in aggregate than before,” a holder of GMAC debt told PEO.
The restructuring would allow GMAC to immediately put additional capital to work financing consumers and car dealers, GMAC chief executive Alvaro de Molina said in a statement.
Moody's Investors Service has downgraded the debt of GMAC upon news of the debt restructuring because the US ratings agency believes that the offering may be a distressed exchange with “default-like implications” for creditors.
In 2006, a Cerberus-led consortium purchased 51 percent of GMAC for $14 billion, with $6 billion coming from the New York-based firm’s own funds. The mortgage and auto lender, formerly the financing wing of General Motors, has been severely hit by the subprime mortgage crisis and general credit market turbulence.
General Motors, which owns 49 percent of GMAC, and Chrysler are currently seeking government backing for a merger of the two ailing auto manufacturers.