GM shares up, GMAC may be eyeing $6 billion loans
By Soyoung Kim and Karen Brettell
DETROIT/NEW YORK (Reuters) - Shares of General Motors Corp jumped on Friday after its auto finance affiliate GMAC won access to government lending programs, while analysts estimated GMAC might be seeking loans of more than $6 billion.
The Federal Reserve approved GMAC's status as a bank on Wednesday, giving the troubled finance company access to the Treasury-run financial bailout package, which may help GMAC avoid bankruptcy and continue financing of dealer and consumer loans for GM vehicles.
The news came less than a week after the U.S. government agreed to bail out GM and Chrysler LLC with $17.4 billion of emergency loans to provide liquidity and stave off collapse and massive job losses.
Analysts said the approval of GMAC as a bank further reduced the risk of bankruptcy for the No.1 U.S. automaker.
Underscoring the financial strains facing the U.S. auto industry, GM filed a lawsuit on Wednesday against a bankrupt auto-parts supplier, saying it is holding necessary equipment "hostage" and that could potentially interrupt the launch of its new Chevrolet Camaro car.
"It's significant in terms of GM's ability to move cars," said Erich Merkle, an analyst at Crowe Horwath.
"Things are still pretty ugly out there (in terms of sales) but in terms of GM possibly filing for bankruptcy, in my mind that's not going to happen. The reason I'm saying this is what they (the government) are doing with GMAC right now."
Shares of GM were up 13.54 percent, or 44 cents, at $3.69 on the New York Stock Exchange.
Bonds of GMAC LLC also rose, while the cost to insure GMAC's debt with credit default swaps plunged.
CreditSights said GMAC may have applied for up to $6 billion in funds from the government's $700 billion financial bailout program, and could potentially sell $17.5 billion in government-backed debt to shore up its capital position.
"While GMAC has not quantified its capital injection request from Troubled Assets Relief Program (TARP), we estimate the company could have applied for up to about $6.3 billion," CreditSights analysts Richard Hofmann and Adam Steer said in a report late on Thursday.
The analysts based their projections based on capital injections being limited to 3 percent of risk-weighed assets.
The bank status came before a debt swap deadline of 11:59 p.m. Friday. GMAC, owned by private equity firm Cerberus and GM, is looking to swap $38 billion of outstanding debt for a smaller amount of new debt, as well as preferred shares and cash, to reduce its debt load and raise capital.
"This opens the door to invest in the senior and subordinated debt," which are trading "at very attractive yields," said Andrew Brenner, an analyst at MF Global Inc in New York.
GMAC's 5.625 percent notes due in 2009 climbed to 94 cents, yielding 23 percent, versus about 73 cents on Monday, its last significant trade, when the note yielded almost 104 percent, according to MarketAxess data.
The cost to insure GMAC's debt with credit default swaps also plunged to around 24 percent the sum insured, or $2.4 million to insure $10 million for five years, plus annual payments of 5 percent. The swaps had traded at around 47 percent before the news.
GMAC TROUBLES
GMAC has struggled as the credit crunch raised its borrowing costs and the value of many of its assets plummeted.
It has lost $7.9 billion over the last five quarters and has said without bank holding company status, it would likely have to sell assets and take other extraordinary measures to make good on its obligations.
The lender's difficulties forced it to severely curtail financing for dealerships and for consumer purchases of new GM cars and trucks in recent months. The cutback in financing compounded the sales slump at GM, the No. 1 U.S. automaker, whose sales fell an eye-popping 41 percent in November.
GM Chief Executive Rick Wagoner said last week that GMAC's difficulties were "hammering" the carmaker's ability to sell vehicles.
GM dealers have depended on GMAC, North America's largest auto finance company, for financing their inventory and consumer purchases even after GM sold a 51 percent stake in GMAC to Cerberus in 2006 for $7.4 billion. GM retains the remaining 49 percent.
GM and Cerberus will have to trim their stakes to no more than 10 percent and 14.9 percent, respectively, to comply with Fed rules that are meant to prevent companies from using banks to fund their businesses.
Meanwhile, in the lawsuit filed in U.S. Bankruptcy Court in Delaware, GM sought access to facilities of parts supplier Cadence Innovation so it could obtain necessary tooling and parts for its plants.
Cadence, which makes door trim, instrument panels and air bag covers, filed for bankruptcy protection in August, but abandoned plans to sell itself and is now liquidating, according to court papers.
(Additional reporting by Walden Siew and Emily Chasan in New York, editing by Leslie Gevirtz)
