The attempt to transform GMAC and its residential financing arm, ResCap, into a bank holding company has been stymied because investors in the bonds of the companies have refused to tender their bonds in exchange for cash and new bonds.
The company needs to have $30 billion in regulatory capital in order to meet the Federal Reserve’s requirements for it to convert to a bank holding company, and last month launched a tender offer to buy or swap $38 billion of its debt. So far, only about $6.3 billion of GMAC notes and $2 billion of ResCap notes have been tendered.
As a result, GMAC is extending the deadline for the tender offer in hopes that more bond owners will participate.
Based on the results of the GMAC and ResCap offers to date, GMAC would not obtain a sufficient amount of total regulatory capital in connection with the GMAC and ResCap offers to meet the requirements set forth by the Federal Reserve for GMAC to become a bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). The Federal Reserve has required GMAC to, among other things, achieve a minimum amount of total regulatory capital of $30 billion in connection with its application. In order for such condition to be satisfied, among other things, the estimated overall participation in the offers would be required to be approximately 75% on a pro rata basis. The Federal Reserve has informed GMAC that if GMAC is unable to meet these capital requirements, it will not approve GMAC’s application to become a bank holding company.
One possibility is that GMAC will attempt to hit up the TARP for a shortfall. Since no one knows how the Treasury Department decides which companies can receive TARP funds or what measure is used to decide the right level of TARP funding, we won’t pretend to be able to predict the outcome of such a request.