The troubled consumer lender GMAC LLC came to the debt market with a $2.9 billion offering of three-year bonds backed by the U.S. government Wednesday, according to people familiar with the deal.
GMAC is the only financial company with a junk credit rating receiving support under the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program.
Moody's Investors Service has the company rated at Ca, two notches above default. The FDIC backing, however, means these bonds will be rated triple-A.
The offering came as GMAC asked the U.S. for another $2.8 billion to $5.6 billion of fresh capital in the form of preferred stock, The Wall Street Journal reported Wednesday. The Treasury Department has already pumped $12.5 billion into the company, which lost $3.9 billion last quarter and is scheduled to post its third-quarter results soon.
The notes maturing in October 2012 carried a coupon of 1.75%. They were priced at 99.991 to yield 1.753%, or 10 basis points below midswaps, according to one person familiar with the deal. In line with earlier talk, the notes offered a bit more compensation than comparable notes from Citigroup Inc., said another person, while a third described the notes as "coming as close to fair value as you can get."
In contrast, GMAC bonds that are not backed by the government must pay steeper yields. The 6.875% bonds due 2012 yield 8.81%, according to KDP Investment Advisors.
Market participants had anticipated demand for the deal.
Whatever GMAC's problems, people who buy these notes know that "ultimately, they're backed by the FDIC," said Michael Skinner, vice president of government and agency trading at broker-dealer Wall Street Access.
In addition, the guarantee program ends this week. Although eligible firms would be subsequently allowed to issue guaranteed debt in emergencies, a steep premium is expected to hobble such issuance.
GMAC first got the go-ahead to sell cheaply priced debt insured by the FDIC May 21.
The FDIC backed $4.5 billion in GMAC-issued debt earlier this year.
Wednesday's issue would complete the FDIC's $7.4 billion May authorization.
