Debts & Loans

DETROIT (AP) — GMAC will no longer have exclusive rights to provide low-interest loans to people who buy General Motors Corp. vehicles, and it will stop financing leases under a complex deal to get federal aid for the troubled lender.

GMAC LLC disclosed the terms of the deal in a filing early Friday with the U.S. Securities and Exchange Commission. The lender said the federal government will get 5 million preferred shares of GMAC paying 8 percent interest in exchange for its $5 billion capital injection to help GMAC avoid bankruptcy.

GMAC is the financial arm of General Motors Corp. and is responsible for making car loans and financing dealer inventories.

In the filing, GMAC disclosed that for the next two years, GM will be able to offer financing incentives such as zero-percent loans through other lenders. After the two years, GM can offer the loans through other lenders in addition to GMAC, the filing said.

The filing also says GMAC won't have to provide lease financing. Auto finance companies have lost money on leases as trade-in values have dropped due to the collapse in U.S. vehicle sales. Also, high gasoline prices devalued pickup trucks and sport utilility vehicles, depressing their after-lease values.

GMAC had paid GM an annual exclusivity fee and had been required to meet targets for leases and loans, the filing said. The exclusivity deal was effective through November 2016, according to the filing.

Also in the filing, GMAC said the government exercised a 10-year warrant to buy 250,000 more GMAC preferred shares for a penny each.

GMAC said if the U.S. Treasury doesn't get interest payments on its preferred shares for six straight quarters, or more than six nonconsecutive quarters, it will get two seats on an expanded GMAC management board.

"These two managers will serve until all accrued and unpaid distributions on the Series D-1 Preferred Interests have been paid in full," GMAC said in the filing.

GMAC is 49 percent owned by GM and 51 percent owned by private equity firm Cerberus Capital Management LP.

On Wednesday, GMAC finished a complicated debt deal designed to raise capital and help the struggling auto and mortgage loan company ride out a historic collapse in auto sales.

The results of the debt exchange fell well short of GMAC's previously stated goals. But they came a week after the Federal Reserve went ahead and approved GMAC's application for bank holding status, making it eligible for a portion of the government's $700 billion bank rescue package.

GMAC said that bondholders owning $21.2 billion of its debt agreed to the exchange. A total of $17.5 billion, or 59 percent, of the GMAC notes were tendered, along with $3.7 billion, or 39 percent, of notes issued by Residential Capital LLC, GMAC's home loan unit. GMAC had hoped for 75 percent participation on both offers.

Yet Standard & Poor's Rating Services on Wednesday cut certain debt ratings for both GMAC and ResCap to "Selective Default" after the deal was announced. It said the debt deal paid less than face value to certain bondholders and devalued the bonds that hadn't been swapped.

GMAC, which has been hit this year by the downturns in both the automotive and housing markets, posted losses totaling $5.59 billion for the first three quarters of this year.

GMAC got the $5 billion in aid from the Treasury Department earlier this week. In addition, the Treasury said it would lend up to $1 billion to GM so that the automaker would be able to buy more equity from GMAC. Those purchases are expected to raise more capital for GMAC.

Analysts had speculated that GMAC could fail without the federal aid.

GMAC provides 85 percent of loans that GM dealers use to stock car and truck inventory. If GMAC were to fail, those dealers would have a tough time getting financing from other sources.

Company officials had said that becoming a bank was GMAC's best hope for survival. In SEC filings, GMAC said it needed to show that it had $30 billion in capital in order for the Fed to approve its application to become a bank holding company. GMAC also said in the filings that it hoped to raise a significant part of that through the debt-swap offers.

GM also received federal help this week to hold off bankruptcy protection. The giant Detroit-based automaker on Wednesday night received the first installment of $9.4 billion in low-cost government loans.

The $4 billion in government aid comes just in time to avert financial disaster because it has large payments due to parts suppliers starting on Friday.