2nd UPDATE: GMAC Plans Sale Of Government-Backed Bonds-Source
03 Juni 2009 - 9:02AM
Dow Jones News
GMAC LLC, the auto and home lender, is planning to sell new
bonds backed by the U.S. government, according to a person who has
seen the deal.
The bonds, which will mature in December 2012, will be sold
under the Federal Deposit Insurance Corporation's Temporary
Liquidity Guarantee Program, or TLGP, meaning it's backed by the
full faith and credit of the U.S., a second person confirmed. This
is the first sale of guaranteed notes for the firm.
Banc of America Securities LLC, Barclays, Deutsche Bank and JP
Morgan are underwriters on the sale.
Gina Proia, a GMAC spokeswoman, declined to comment.
GMAC converted to a bank-holding company last year and is seen
as crucial to the survival of Chrysler LLC and General Motors Corp.
GM filed for Chapter 11 bankruptcy protection in New York on
Monday.
GMAC got the much-awaited go-ahead to sell cheaply priced debt
insured by the FDIC on May 21. Under this arrangement, GMAC can
issue as much as $7.4 billion of FDIC-guaranteed debt.
Official price guidance on the new bonds has not been released,
but one bond investor said that even with the FDIC guarantee, GMAC
would have to offer an attractive interest rate because of the
"fluidity of the situation" from the GM bankruptcy. The investor
said a risk premium of 20 basis points over mid-swaps would be
attractive.
By way of comparison, a Wells Fargo guaranteed note due May 2012
is trading at mid-swaps minus 20 basis points.
Although there has been no word on the size of the deal, a
second investor speculated that GMAC could look to raise at least
$2 billion through the sale.
Richard Lee, managing director, fixed-income trading, at Wall
Street Access, a broker-dealer in New York, expects banks and
financial institutions to continue to raise both FDIC-guaranteed
and non-FDIC-backed funds in the capital markets.
"They would be crazy not to," he said, especially as many still
have problem assets, which "they will have to sell at distressed
levels or write down and that will eat into their capital."
Banks that want to repay TARP as soon as possible will need to
sell more non-government-backed debt.
"... if they are going to pay off TARP as soon as possible, then
there is still a long way to go and then they have to deal with
these other troubled assets," Lee said.
"They don't have enough of a capital cushion to be able to do
this," he added.
GMAC suffered a net loss of $675 million in the first quarter,
wider than a $589 million loss a year earlier.
The Treasury Department confirmed in May that it will inject
$7.5 billion in GMAC, which needs to figure out by June 8 how it
will fill an $11.5 billion equity hole. The Treasury investment
includes $4 billion earmarked for loans to Chrysler dealers and
consumers. The remaining $3.5 billion will go to strengthen GMAC's
capital position.
The Treasury also said it would swap $884 million of its
existing preferred-stock investment for common stock, giving the
government a 35.4% equity stake in the lender. This stake could
increase to more than half if GMAC, amid potential mounting losses
and meager capital levels, were to convert the government's
investments into common equity.
-By Kate Haywood and Romy Varghese, Dow Jones Newswires;
201-938-2348; kate.haywood@dowjones.com
(Aparajita Saha-Bubna contributed to this report.)