GMAC Waiting to Issue Debt

Story from the Wall Street Journal

More than three months after turning itself into a bank, GMAC LLC is still waiting for the green light from regulators to issue debt crucial to its funding plan.

GMAC, the former financing arm of General Motors Corp., is seeking the go-ahead from the Federal Deposit Insurance Corp. to sell cheaply priced debt insured by the FDIC as part of the Temporary Liquidity Guarantee Program.

This program has allowed an array of financial institutions, ranging from Citigroup Inc. to General Electric Co.'s General Electric Capital Corp., to raise financing when they were otherwise shut out from repaying or refinancing debt as a result of the credit crisis. Qualifying financial firms have so far raised $238.2 billion of government-backed bonds or surety bonds since this program was announced in October, according to data provider Dealogic.

GMAC has $30.6 billion of debt maturing in 2009, including $11.8 billion of unsecured debt. Gaining access to cheap capital through TLGP was a major driving force behind the cash-strapped lender's bank registration in December.

"Despite becoming a bank, GMAC is squeezed for capital," says Mark Wasden, an analyst at Moody's Investors Service. GMAC unsecured debt is rated the lowest of 19 credit rankings by Moody's, just a step up from default. Moody's outlook on this rating suggests it could be bumped up.

The ability to issue FDIC-backed debt would "represent real liquidity. GMAC needs that today," Mr. Wasden says. The lender could raise as much as $12 billion through the TLGP, according to Moody's initial estimates using FDIC guidelines. "It's a potentially sizable amount," Mr. Wasden says. The amount GMAC may issue could differ based on the FDIC's decision.

"We have an application pending with the FDIC," says Gina Proia, a GMAC spokeswoman. "We are in the process of responding to requests for additional information."

An FDIC spokeswoman said GMAC's application "is currently under review," while declining to comment on specific details.

To be sure, GMAC does have access to other forms of federal funding: It got $5 billion under the U.S. Treasury's Troubled Asset Relief Program. GMAC Bank, as of the end of 2008, had used up $10 million of a $4 billion credit line from the Federal Reserve. The lender also is exploring ways to tap the government's Term Asset-Backed Securities Loan Facility, or TALF, aimed at reviving lending to consumers.

In addition, deposits at GMAC Bank grew by one-third, to $19.2 billion, as of Dec. 31, 2008, compared with a year earlier. The lender also shored up its capital base through a $38 billion debt exchange in November.

But concerns persist around GMAC's finances because of continuing potential losses at its auto-finance and mortgage units; its hefty debt burden; restrictions on its lending practices because of its new status as a bank; and debt and capital levels the lender must comply with as a bank.

GMAC is jointly owned by GM and an investor group led by private-equity firm Cerberus Capital Management LP. The auto maker and the investor group will significantly scale back their ownership in GMAC as a condition of the lender becoming a bank-holding company.