GMAC details $5 billion investment from Treasury, enters exchange agreement

By Jennifer Chiou

New York, Jan. 2 - GMAC LLC revealed the specifics of its issue of $5 billion of preferred membership interests and warrants to the U.S. Department of the Treasury under the Troubled Asset Relief Program after receiving approval from the Federal Reserve Board to become a bank holding company, according to an 8-K filing with the Securities and Exchange Commission.

GMAC obtained approval on Dec. 24.

The Automotive Industry Financing Program was created under the TARP.

Under the program, the company sold 5 million units of its fixed-rate cumulative perpetual preferred series D-1 membership interests and a 10-year warrant to purchase up to 250,000 of GMAC's fixed-rate cumulative perpetual preferred series D-2 membership interests.

Distributions under the series D-1 preferred interests will accrue at 8% per year. The non-voting interests have no maturity date and rank senior to the company's junior membership interests.

Three years after issue, GMAC may redeem the interests in whole or in part. Prior to that date, the company may redeem the securities if it has raised proceeds of more than $1.25 billion in one or more equity offerings.

The warrant is immediately exercisable and the D-2 interests have the same rights, preferences, privileges and terms as the series D-l preferred interest, except that they will receive distributions at 9% per year.

Exchange agreement

GMAC previously announced that General Motors Corp. and an affiliate of Cerberus Capital Management agreed to purchase $1.25 billion of new common equity and contributed to GMAC the $750 million subordinated participations in the $3.5 billion senior secured credit facility between GMAC and ResCap in exchange for new common equity of GMAC.

GMAC entered into an exchange agreement with GM and Cerberus' FIM Holdings LLC on Dec. 29, under which GMAC agreed to issue $750 million of common equity interests to GM and FIM in exchange for a contribution of the $750 million of subordinated participations mentioned above.

The Treasury and GM had planned to enter into an agreement for the Treasury to fund GM's share of the new common equity, a prior news release stated.

Subscription agreement

GMAC also entered into a membership interest subscription agreement with GM and FIM.

Under this agreement, GM and FIM agreed to subscribe for and purchase common equity membership interests of GMAC for total consideration of $1.25 billion.

Under the terms, FIM agreed to purchase up to $637.5 million of class A membership interests of GMAC. The actual number to be purchased will be in the sole discretion of FIM, provided that FIM is committed to purchase not less than $250 million of the interests at a purchase price equal to $4,630 per interest.

GM agreed to purchase class B membership interests of GMAC equal to $1 billion in value less the value of any class A membership interests purchased by FIM, also at a purchase price equal to $4,630 per interest.

Previous tender, exchange offers

On Dec. 31, the company said it received and accepted tenders for $17.5 billion, or 59%, of its outstanding notes and $3.7 billion, or 39%, of Residential Capital, LLC's notes in the private exchange offers and tender offers it began in November.

As previously reported, the exchange offers and tender offers for 33 series of outstanding GMAC and ResCap debt securities totaling $38 billion began on Nov. 20. The early delivery time was 5 p.m. ET on Dec. 19, and the offer expired on Dec. 26.

The company had offered to purchase and/or exchange any and all of the notes series for, at the election of each noteholder, either (a) new securities, consisting of (i) a combination of newly issued senior guaranteed notes for the old GMAC notes maturing prior to 2031 or a combination of new guaranteed notes and newly issued 8% subordinated notes due 2018 for old GMAC notes due 2031, and (ii) newly issued 9% perpetual senior preferred stock with a liquidation preference of $1,000 per share of a wholly owned subsidiary of GMAC; or (b) cash.

The cash elections for the offers were oversubscribed. As a result, noteholders who made cash elections will receive cash for a percentage of their tendered notes - 23.2% for GMAC notes and 47.8% for ResCap notes - and the remainder of the tendered notes will be exchanged for new securities.

GMAC said it will issue $11.9 billion of new notes and $2.6 billion of new preferreds in exchange for its old notes and $688 million of new GMAC 7½% senior notes due 2013 and $483 million of new GMAC 8% subordinated notes due 2018 in exchange for ResCap's notes.

GMAC results

Specifically, GMAC received tenders for and accepted:

• €309.19 million of its €750 million Euribor plus 125 basis points notes due 2009. In exchange for these notes, GMAC will issue $323.1 million of new notes. Holders were offered $850 in cash or $850 of new senior guaranteed notes and $150 of preferreds;

• €225.68 million of its €1.25 billion 4¾% notes due 2009. In exchange for these notes, GMAC will issue $211.89 million of new notes. Holders were offered $830 in cash or $850 of new senior guaranteed notes and $150 of preferreds;

• $149.68 million of its $250 million 6½% notes due 2009. In exchange for these notes, GMAC will issue $126.98 million of new notes. Holders were offered $765 in cash or $850 of new senior guaranteed notes and $150 of preferreds;

• $1.18 billion of its $2.40 billion 7¾% notes due 2010. In exchange for these notes, GMAC will issue $778.85 million of new notes. Holders were offered $815 in cash or $850 of new senior guaranteed notes and $150 of preferreds;

• €36.73 million of its €500 million 5¾% notes due May 2010. In exchange for these notes, GMAC will issue $34.33 million of new notes. Holders were offered $720 in cash or $825 of new senior guaranteed notes and $175 of preferreds;

• €456.48 million of its €1 billion 5¾% notes due September 2010. In exchange for these notes, GMAC will issue $448.95 million of new notes. Holders were offered $650 in cash or $825 of new senior guaranteed notes and $175 of preferreds;

• £51.83 million of its £200 million 6 5/8% notes due 2010. In exchange for these notes, GMAC will issue $48.83 million of new notes. Holders were offered $600 in cash or $825 of new senior guaranteed notes and $175 of preferreds;

• $1.20 billion of its $2 billion 7¼% notes due 2011. In exchange for these notes, GMAC will issue $802.16 million of new notes. Holders were offered $700 in cash or $825 of new senior guaranteed notes and $175 of preferreds;

• $174.28 million of its $400 million 6% notes due April 2011. In exchange for these notes, GMAC will issue $122.61 million of new notes. Holders were offered $650 in cash or $825 of new senior guaranteed notes and $175 of preferreds;

• €594.07 million of its €1.50 billion 5 3/8% notes due 2011. In exchange for these notes, GMAC will issue $570.44 million of new notes. Holders were offered $580 in cash or $825 of new senior guaranteed notes and $175 of preferreds;

• $4.35 billion of its $5.45 billion 6 7/8% notes due 2011. In exchange for these notes, GMAC will issue $3.09 billion of new notes. Holders were offered $650 in cash or $825 of new senior guaranteed notes and $175 of preferreds;

• $872 million of its $1 billion 6% notes due December 2011. In exchange for these notes, GMAC will issue $562.27 million of new notes. Holders were offered $630 in cash or $825 of new senior guaranteed notes and $175 of preferreds;

• $544.78 million of its $1 billion 7% notes due 2012. In exchange for these notes, GMAC will issue $357.49 million of new notes. Holders were offered $630 in cash or $825 of new senior guaranteed notes and $175 of preferreds;

• $613.70 million of its $1 billion 6 5/8% notes due 2012. In exchange for these notes, GMAC will issue $407.35 million of new notes. Holders were offered $620 in cash or $825 of new senior guaranteed notes and $175 of preferreds;

• €136.77 million of its €300 million 6% notes due 2012. In exchange for these notes, GMAC will issue $129.26 million of new notes. Holders were offered $600 in cash or $825 of new senior guaranteed notes and $175 of preferreds;

• $1.20 billion of its $2 billion 6 7/8% notes due 2012. In exchange for these notes, GMAC will issue $784.68 million of new notes. Holders were offered $620 in cash or $825 of new senior guaranteed notes and $175 of preferreds;

• $1.19 billion of its $1.75 billion 6¾% notes due 2014. In exchange for these notes, GMAC will issue $764.65 million of new notes. Holders were offered $590 in cash or $800 of new senior guaranteed notes and $200 of preferreds;

• $471.62 million of its $593.72 million Libor plus 220 bps notes. In exchange for these notes, GMAC will issue $294.77 million of new notes. Holders were offered $550 in cash or $800 of new senior notes and $200 of preferreds; and

• $3.03 billion of its $3.97 billion 8% notes due 2031. In exchange for these notes, GMAC will issue $2 billion of new notes. Holders were offered $600 in cash or $500 of new senior notes and $350 of new subordinated notes and $150 of preferreds.

ResCap results

As for the ResCap offers, GMAC received tenders for and accepted:

• $6.23 million of ResCap's $62.55 million Libor plus 310 bps notes due April 17, 2009, which were exchangeable for $300 of new senior notes and $250 of new subordinated notes. These notes had no cash election option;

• $15 million of ResCap's $205.45 million Libor plus 383 bps notes due April 17, 2009, which were exchangeable for $300 of new senior notes and $250 of new subordinated notes. These notes had no cash election option;

• $12.94 million of ResCap's $131.6 million Libor plus 310 bps notes due May 22, 2009, which were exchangeable for $300 of new senior notes and $250 of new subordinated notes. These notes had no cash election option;

• $830.51 million of ResCap's $1.57 billion 8½% notes due May 15, 2010, which were exchangeable for $500 in cash or $750 of new senior notes;

• $429.21 million of ResCap's $1.25 billion 8 3/8% notes due June 30, 2010, which were exchangeable for $220 in cash or $200 of new senior notes and $300 of new subordinated notes;

• €18.10 million of ResCap's €360.99 million Euribor plus 345 bps notes due Sept. 27, 2010, which were exchangeable for $210 in cash or $200 of new senior notes and $300 of new subordinated notes;

• $9.37 million of ResCap's $217.8 million 8% notes due Feb. 22, 2011, which were exchangeable for $200 in cash or $150 of new senior notes and $350 of new subordinated notes;

• €12.30 million of ResCap's €110.9 million 7 1/8% notes due May 17, 2012, which were exchangeable for $200 in cash or $150 of new senior notes and $350 of new subordinated notes;

• $15.01 million of ResCap's $94.97 million 8½% notes due June 1, 2012, which were exchangeable for $200 in cash or $150 of new senior notes and $350 of new subordinated notes;

• $401.42 million of ResCap's $874.83 million of 8½% notes due April 17, 2013, which were exchangeable for $200 in cash or $150 of new senior notes and $350 of new subordinated notes;

• £3.97 million of ResCap's £40.75 million 8 3/8% notes due May 17, 2013, which were exchangeable for $200 in cash or $150 of new senior notes and $350 of new subordinated notes;

• £1 million of ResCap's £65.27 million 9 7/8% notes due July 1, 2014, which were exchangeable for $200 in cash or $150 of new senior notes and $350 of new subordinated notes;

• $1.89 billion of ResCap's $4.01 billion 9 5/8% junior secured guaranteed notes due May 15, 2015, which were exchangeable for $250 in cash or $250 of new senior notes and $300 of new subordinated notes; and

• $38.73 million of ResCap's $150.96 million 8 7/8% notes due June 30, 2015, which were exchangeable for $200 in cash or $150 of new senior notes and $350 of new subordinated notes.

GMAC needed to achieve at least $30 billion of total regulatory capital to meet the Federal Reserve's requirements for it to become a bank holding company.

Previously, the company said it planned to withdraw its application to become a bank holding company if it did not receive the needed amount of notes and that if it were unable to successfully convert to a bank holding company and complete the offers by Dec. 31, it would have a near-term material adverse effect on GMAC's business, results of operations and financial position.

Registration rights agreements

GMAC, the dealer managers for the offers and the note guarantors also entered into a registration rights agreement related to the new guaranteed notes.

Under two other registration rights agreements, GMAC agreed to, at its own cost and for the benefit of holders of the new notes, to use its commercially reasonable efforts to consummate and offer to exchange the new notes for new issues of GMAC's registered debt securities.

In the event that the new notes are not freely tradable and no exchange offer is executed, GMAC said that it will file a shelf registration statement to cover resales of the new notes within 30 days of the exchange date.

Global Bondholder Services Corp. (866 794-2200) was the information agent for the previous offers.

Financing services agreement

On Nov. 30, 2006 and in connection with the sale by GM of a 51% interest in GMAC, GM and GMAC entered into a United States Consumer Financing Services Agreement.

As previously disclosed, the agreement provided that whenever GM offers vehicle financing and leasing incentives to customers, it would do so exclusively through GMAC.

This requirement was effective through November 2016, and in consideration for this, GMAC paid to GM an annual exclusivity fee and was required to meet certain targets with respect to consumer retail and lease financings of new GM vehicles.

Effective Dec. 29 and in connection with the approval of GMAC's application to become a bank holding company under the BHC Act, GM and GMAC agreed to modify certain terms and conditions of the financing services agreement.

Amendments include the following:

• For a two-year period, GM can offer retail financing incentive programs through a third-party financing source under certain specified circumstances, and after the two-year period GM can offer any incentive programs on a graduated basis through third parties on a non-exclusive, side-by-side basis with GMAC, provided that pricing of such third parties meets certain requirements;

• GMAC will have no obligation to provide operating lease financing products; and

• GMAC will have no targets against which it could be assessed penalties.

After Dec. 24, 2013, GM will have the right to offer retail financing incentive programs through any third-party financing source, including GMAC, without any restrictions or limitations.

GM, through its subsidiaries GM HoldCo and GM Preferred HoldCo, and FIM are beneficial owners of 49% and 51% of the membership interests of GMAC.

Termination of participation agreement

According to the 8-K, GMAC, Residential Funding Co., LLC and GMAC Mortgage, LLC are parties to a senior secured credit facility, under which GMAC provides a senior secured credit facility with a capacity of up to $3.5 billion.

In connection with the GMAC facility, GMAC, GM and Cerberus ResCap Financing, LLC entered into a participation agreement under which GMAC sold GM and the Cerberus Fund $750 million in subordinated participations, and GM and the Cerberus Fund acquired 49% and 51% of the participations, respectively.

Under the participation agreement, neither GM nor the Cerberus Fund were entitled to receive any principal payments with respect to the participations until the principal portion of the loans retained by GMAC have been paid in full.

In connection with entering into the exchange agreement, Cerberus Fund contributed and assigned its participation to FIM.

On Dec. 29, GMAC entered into a termination agreement with GM and FIM, under which the parties agreed to terminate rights, title and interests of the parties under the participation agreement.

GMAC is a Detroit-based diversified financial services company.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.