What follows is the recently published update from the Treasury Department on its Automotive Industry Financing Program, which encompasses TARP investments into auto financiers GMAC and Chrysler Financial. Treasury has invested $19.4 billion into the AIFP. This report was submitted to Congress this month:

Automotive Industry Financing Program

Treasury announced a new program in December [2008], the AIFP, to prevent a significant disruption of the American automotive industry, which would pose a systemic risk to financial market stability and have a negative effect on the economy of the United States. The program requires participating institutions to implement plans that will achieve long-term viability. Participating institutions must also adhere to rigorous executive compensation standards and other measures to protect the taxpayer’s interests, including limits on the institution’s expenditures and other corporate governance requirements. Guidelines for the AIFP are published on Treasury’s web site. Between December 29 and January 2, Treasury committed to provide $19.4 billion in TARP funds under this program, with an additional $4 billion subject to certain conditions.

On December 29, 2008, Treasury purchased $5 billion of senior preferred equity with an 8% annual distribution right from GMAC LLC (GMAC) through the AIFP. Under the agreement, GMAC issued warrants to Treasury to purchase, for a nominal price, additional preferred equity in an amount equal to 5% of the preferred equity purchased. These warrants were exercised at closing of the investment transaction. The additional preferred equity provides for a 9% annual distribution right. Additionally, Treasury committed to lend up to $1 billion of TARP funds to GM so that GM can participate in a rights offering by GMAC in support of GMAC’s reorganization as a bank holding company. The rights offering is expected to close, and the loan to GM is expected to be funded, on January 16, 2009. The loan will be secured by GMAC equity interests owned by GM and those being acquired by GM in the rights offering, and it will be exchangeable at any time, at Treasury's option, for the GMAC equity interests being acquired by GM in the rights offering. The ultimate level of funding under this facility will depend upon the level of current investor participation in GMAC’s rights offering.

Treasury completed an additional transaction with GM on December 31. Under the GM agreement, Treasury will provide GM with up to a total of $13.4 billion in a three-year loan from the TARP, secured by various collateral. Treasury funded $4 billion of this loan immediately, and committed to fund an additional $5.4 billion on January 16, 2009. Treasury will provide an additional $4 billion on February 17, 2009, subject to certain conditions. To protect taxpayers, the agreement requires GM to develop and implement a restructuring plan to achieve long-term financial viability. The restructuring plan is to be reviewed by a designee of the President, who will determine whether the goals of the restructuring have been met. If the President’s Designee does not find that the goals have been met, the loan will be automatically accelerated and will come due 30 days thereafter. This agreement also includes other binding terms and conditions designed to protect taxpayer funds, including compliance with certain enhanced executive compensation and expense control requirements. Furthermore, Treasury received a warrant for shares of GM common stock and an additional senior unsecured note in the principal amount of $748.6 million.

On January 2, 2009, Treasury provided a three-year $4 billion loan to Chrysler Holding
LLC (Chrysler) under the new AIFP. The loan is secured by various collateral, including parts
inventory, real estate, and certain equity interests held by Chrysler. Like the GM agreement, this agreement requires Chrysler to submit a restructuring plan to achieve long-term viability for review by the President’s designee and provides for acceleration of the loan if those goals are not met. The agreement includes other binding terms and conditions designed to protect taxpayer funds, including compliance with certain enhanced executive compensation and expense-control requirements. Furthermore, Treasury received a senior unsecured note of Chrysler payable to Treasury in the principal amount of $267 million.