On the last business day of the year, the General Motors financing affiliate GMAC announced a swap of $21.2 billion in debt for $15.7 billion of new securities and cash, easing the company's debt burden, but requiring investors to take less than face value for their holdings.
The move was taken in order for GMAC to become a bank holding company, a status approved by the Federal Reserve on December 4. The transformation paves the way for GMAC to access low-cost funding and hopefully will insure its survival. The debt swap comes in the wake of a $6 billion federal bailout for the troubled financing entity.
As the main lender to General Motors customers, restoring the viability of GMAC is a key component to saving the nation's largest automaker. The other major owner of GMAC is Cerberus Capital Management LP.
On Tuesday, December 30, GMAC announced the resumption of loans to consumers with credit scores of 621 or higher, backing away from the 700 score level that has been in place since October. The average credit score in the U.S. is approximately 723.
The company is faced with recovering from losses totaling approximately $7.9 billion accrued in the fifteen month period that ended on September 30.
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