GMAC Financial Services (GMAC) announced today an outline of the steps it has taken and will take to "strengthen the company's capital base" and "accelerate the timetable for repayment of the U.S. government's investment."
GMAC will receive an additoinal $3.79 billion capital infusion from the U.S. Treasury in connection with the Federal Reserve's Supervisory Capital Assessment Program (SCAP) requirement. In addition, U.S. Treasury will convert $3.0 billion of its existing mandatory convertible preferred stock (MCP) into common equity increasing its common equity ownership to approximately 56.3 percent; GMAC will recognize a pre-tax charge of approximately $3.8 billion, with $3.3 billion related to the mortgage write-downs at Residential Capital, LLC (ResCap) and Ally Bank and $500 million related to repurchase reserve expense; ResCap will receive approximately $2.7 billion in additional capital; and Ally Bank will recognize a $1.3 billion pre-tax charge and be recapitalized with a $1.3 billion cash infusion from GMAC.
The U.S. Treasury also announced its capital commitment to GMAC, and noted that this commitment is less than the capital needs determined by the SCAP assessment in May, after which Treasury was prepared to provide $5.6 billion of capital to GMAC, thanks to GMAC suffering less business disruption than was originally anticipated. Treasury also noted that it has structured the capital commitment in order to "best protect the taxpayers' investment." The capital will be provided in the following form: $2.54 billion of trust preferred securities (TRUPs), which will bear an 8% coupon and will be senior to all other equity securities of GMAC; $1.25 billion of (additional) MCP; and Treasury will exchange $5.25 billion of non-convertible preferred stock into MCP, in substantially the same form as Treasury's existing MCP in order for GMAC to meet its Tier 1 SCAP requirements, after which, Treasury will hold $11.4 billion of MCP in GMAC.
In addition, Treasury will receive warrants to purchase an additional $127 million of TRUPs and $63 million of MCP, which Treasury intends to exercise immediately. Finally, Treasury will have the right to appoint four of GMAC's nine directors (instead of the previous two directors).