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U.S. to buy huge stake in GMAC
$6-billion investment is part of plan to prop up U.S. auto industry

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By JUSTIN HYDE and TIM HIGGINS ● FREE PRESS WASHINGTON STAFF ● December 29, 2008

WASHINGTON – The U.S. Treasury will inject up to $6 billion into GMAC as part of a plan to shore up the finances of GM’s lending arm and the U.S. auto industry, the Bush administration said today.

Under the plan, the Treasury will buy $5 billion in preferred GMAC shares, paying an 8% annual dividend. It also will lend up to $1 billion to General Motors Corp. so that it too can buy additional equity in GMAC, which the Treasury could take on demand.

The Treasury said the money for the injection would come from the $700 billion financial industry bailout, and that GMAC would have to meet restrictions on executive pay as part of the deal.

The troubled lending arm won a key lifeline last week when the Federal Reserve said it could become a bank holding company, granting it access to the $700-billion financial industry bailout and other aid.

GMAC had pressured bondholders to convert 75% of their debt into equity, part of a plan to raise $30 billion in capital and stave off a possible bankruptcy of its own.

As of this evening, however, GMAC still had not announced the results from that debt exchange, which ended at midnight Friday.

“We are processing the results, and we will disclose the final tabulation here sometime soon,” said GMAC spokeswoman Toni Simonetti.

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