1. Congress bails out Detroit to the tune of $17.4 billion.
And "of course", if GM gets a loan, GMAC should access Federal funds via the U.S. commercial banking system. From Bloomberg:
GMAC will transfer at least 25 percent of the mortgage unit’s outstanding debt to ResCap for equity in IB Finance Holding Co., which is the parent of GMAC Bank, the Detroit-based company said in the statement. The transaction may trigger a “succession event” in ResCap credit-default swaps, GMAC said. A succession event could erode the value of those contracts.
The move may be an attempt to coerce bondholders to participate in GMAC’s $38 billion exchange offer, which was designed to help it convert to a bank holding company and gain access to federal aid. Bondholders that also bought credit- default swaps on ResCap debt “are a major factor in preventing the exchange from meeting the necessary threshold,” Barclays Capital analyst Bradley Rogoff said in a report dated Dec. 10. GMAC said yesterday it remains short of the 75 percent participation it needs for its plan to work.
2. GMAC (and its parent, IB Finance) become members of the U.S. commercial banking system.
3. But GMAC's access to TARP funding still in question. From the Washington Post: The financing arm of General Motors Corp. wasn't immediately saying early Saturday whether it had met a midnight deadline to clear a final hurdle in its quest to become a bank holding company, which would allow it to access billions in federal bank bailout money.
GMAC Financial Services LLC already received the Federal Reserve's stamp of approval earlier this week, but needed to complete a complicated debt-for-equity exchange by 11:59 p.m. EST Friday.
In an e-mail at 12:45 a.m. Saturday, GMAC spokeswoman Gina Proia did not say whether the company met the deadline. She didn't respond to repeated requests for further comment.
Analysts have speculated that without financial help, GMAC would have had to file for bankruptcy protection or shut down, dealing a serious blow to GM's own chances for survival.
When the Fed on Wednesday made GMAC eligible to access part of the government's $700 billion bank rescue fund, it was contingent ailing auto and home loan provider completing the debt exchange.
The Federal Reserve apparently needed to see that the bondholders were willing to inject more capital into GMAC, a critical requirement to get bank holding status. GMAC bondholders needed reassurance that the Fed would approve GMAC's application to qualify for federal aid. RW: The way that Congress is writing checks these days makes it more likely than not that GMAC will get its $6.3 billion. How many of you believe that the auto industry bailout, including its financiers (GMAC), will ultimately cost just $17.4 + $6.3 = $23.7 billion? Not I; this is simply ludicrous.
The saga that is the auto industry bailout has just begun.