The Treasury Department announced last night that it agreed to purchase $5 billion of Preferred Membership Interests in GMAC, LLC (GMAC) “as part of a broader program to assist the domestic automotive industry in becoming financially viable.” Under the terms of the purchase, GMAC will be required to comply with the executive compensation limits of Section 111 of the Emergency Economic Stabilization Act of 2008. According to the term sheet, GMAC will issue warrants to Treasury in the form of additional preferred equity in an amount equal to 5% of the preferred stock which will pay a 9% dividend when exercised. Simultaneously with this announcement, Treasury announced that it agreed to lend up to $1 billion to General Motors (GM) “so that GM can participate in a rights offering at GMAC in support of GMAC’s reorganization as a bank holding company.” The commitment letter provides GM with liquidity for the rights offering and is in addition to the $13.4 billion loan facility made to the automaker earlier this month. The new facility will be made available to GM “on substantially the same terms and conditions” as the previous loan facility.
Based on the most recently released Capital Purchase Program (CPP) completed transaction report, approximately $172.46 billion in TARP funds have been utilized for the CPP. Although Treasury noted that the $17.4 billion in loans to the auto industry had “effectively” allocated the first $350 billion in TARP funds, it is unclear whether this administration will seek Congressional action for the second tranche of $350 billion to cover this new funding, though these allocations to GMAC and GM make that more likely.