WASHINGTON–GMAC, the financing arm of General Motors, has become the latest to receive an infusion of cash from the Treasury Department. Treasury said it was funneling $6 billion from its Troubled Asset Relief Program into GMAC.
Under the agreement, Treasury has purchased $5 billion in senior preferred stock with an 8% dividend from GMAC. In return, GMAC will issue warrants to Treasury in the form of additional preferred equity in an amount equal to 5% of the preferred stock purchase that will pay a 9% dividend if exercised. Treasury also said it would lend up to $1 billion to General Motors so the auto company can participate in a rights offering at GMAC’s reorganization as a bank holding company.
Under the agreement, GMAC had to agree to restrictions on executive compensation that were part of the original TARP program authorized under the Oct. 3 bailout law. GMAC is only partially owned by GM, which holds a 49% controlling interest. The rest is controlled by Cerberus Capital Management, a private investment firm.
The Federal Reserve Board approved GMAC last week to become a bank holding company, contingent on a debt for equity swap that was to be completed by Dec. 26.
