US Treasury to pump in additional $3.8 bn into GMAC

The US Treasury Department will provide an additional aid of $3.8 billion (around Rs 17,670 crore) to GMAC Financial Services and boost its stake in the troubled consumer finance firm to 56 per cent.

"Due to variety of factors, including restructuring of General Motors and Chrysler were accomplished with less disruption to GMAC than banking supervisors initially projected, Treasury will commit $3.8 billion of new capital to GMAC rather than the $5.6 billion originally announced," the Treasury said in a statement.

The lower commitment as compared to the earlier announced one would result in a $1.8 billion (around Rs 8,370 crore) reduction in Treasury's previously forecast expenditures.

In May, the Supervisory Capital Assessment Program (SCAP) identified an additional capital need of $5.6 billion for GMAC, which Treasury's internal forecasts have assumed would need to be provided by Treasury.

Further, the Treasury would convert $3 billion (around Rs 13,950 crore) of its existing convertible preferred stocks, which was invested in May, into common equity to boost GMAC's quality of capital.

"Treasury's equity ownership of GMAC will increase from 35 per cent to 56 per cent due to this conversion," the Treasury statement added.

The actions are aimed at offering GMAC the best chance to complete its overall restructuring plan and return to private capital markets for its debt financing and capital needs in 2010, it added.

To best protect taxpayers' investment in GMAC, the $3.8 billion of new capital would be provided in the form of $2.54 billion of Trust Preferred Securities (TRUPs), which are senior to all other capital securities of the company, and $1.25 billion of Mandatory Convertible Preferred Stock (MCP), the Treasury statement said.

In connection with providing capital, the Treasury would also receive warrants to purchase an additional $127 million of Trust Preferred Securities (TRUPs) and $63 million of Mandatory Convertible Preferred Stock (MCP), which it would exercise immediately at the closing of transaction.

Corresponding with an increase in its ownership in GMAC, the Treasury would have the right to appoint two additional directors to the company's Board of Directors.

Four of nine directors would ultimately be appointed by Treasury and intends to nominate its new directors in time for GMAC's annual meeting at the end of April, the statement added.

Earlier, the Treasury had invested $12.5 billion in preferred stock of GMAC. And through purchases and exercise of warrants owns $13.1 billion in preferred stock and 35 per cent of the common equity in GMAC.