Now that GM has been informed by Treasury that bondholders will cry Uncle, let’s ask about equity in the new GM. What is GMAC now worth to GM and the newly rearranged equity? Prior to Thursday of last week, GMAC was basically locked out of the unsecured bond market, but as soon as the UAW made an agreement with GM, Sheila Bair immediaetly gave GMAC FDIC approval to issue AAA rated debt in the open market. This has giant implications for GMAC, their owners GM and Cerebus Capital. As part of the TARP agreement in December of 2008, both entities agreed to liquidate shares of GMAC. No sale has happened to date and now GMAC is worth a lot more since they can issue AAA debt at terrific rates and capitalize their balance sheet as well as roll out loans to dealers and consumers.
In April 2006, Cerebus paid 14 Billion for 51% of GMAC… surely there is a value now that will be of great help to GM in the coming weeks that will aid Treasury and the White House to pull GM out of this so called bankruptcy. Anyone see GMAC as the missing link?
I think AmeriCredit is ripe to be acquired, possibly by Leucadia National Corp., which owns about a 20% stake.
Now, if we can judge where residuals are heading so that GM can contemplate leasing without subvention … fleet sales have been down for some time, so that ought to boost values, but who knows what impact Chapter 11 will have on new and used GM product? And with overall demand (and energy prices) uncertain, how to value specific vehicles. Lots to contemplate, but not yet “actionable”?
Matthew, thanks for your post. Forgive me, but what exactly do you mean by “GMAC as the missing link”? Do you mean GMAC is the linchpin to the new GM’s success? If so, please elaborate on that. Do you see GMAC with its ability to issue AAA-rated debt as funding the new GM with cheap capital?
GMAC represents a large asset to GM and Cerebus Capital. Under the TARP rules, Treasury is requiring GM to reduce it’s ownership of GMAC to less than 10% and Cerebus less than 14.9%. Since GMAC received bank status on December 24, 2008, Sheila Bair at FDIC has witheld GMAC’s ability to issue FDIC bonds in the open market. Just when the UAW and GM came to an agreement last Thursday, did she grant them that ability. The value of GMAC is greatly enhanced by their ability to now go to the public market as a “C” rated company and issue AAA rated debt at very low interest rates. This new debt can be used to recapitalize themselves, i.e.. call in older more expensice existing debt, or simply sell new debt to dealers, consumers etc. The administration knows this, and seems to have an interest in controlling the credit market. As new owners of GM and Chrysler, (remember the White House said that GMAC will be the financing arm of the new Chrysler) Treasury also will have a say in the credit process. and profits.