GMAC's Deal with Sheila Bair

GMAC sold more FDIC-backed debt today… (Reuters)

General Motors Acceptance Corp on Wednesday sold $2.9 billion in three-year government-guaranteed notes, according to a market source familiar with the sale. The 1.75 percent notes were priced at 99.991 to yield 1.753 percent, or 31.6 basis points over comparable U.S. Treasuries.

The notes are guaranteed under the Federal Deposit Insurance Corp’s temporary liquidity guarantee program.

GMAC has permission to sell up to $7.4 billion of FDIC-backed debt, in addition to the $12.5 billion of TARP money already received and the $2.8-$5.6 billion of additional TARP cash they’re negotiating for.

In exchange for upping GMAC’s TLGP allowance, Sheila Bair supposedly extracted concessions on the interest rates GMAC will be able to advertise for deposits.

On BankRate, they’re still listed as #3 for 1-yr CDs.

While we’re on the subject of auto bailouts, John Stoll and Sharon Terlep of WSJ are reporting that GM dipped into its bailout fund from Treasury to help rescue supplier Delphi:

General Motors Co. by the end of the week will outline plans to draw down more U.S. government money it will use to aid Delphi Automotive LLP and also give an update on a closely watched escrow account of its bailout funds, according to several people familiar with the matter.

GM’s additional borrowing will mostly be limited to Delphi’s funding needs and is expected to be north of $2.5 billion, based on prior announcements.

According to the article, the U.S. has committed $50 billion to the GM bailout, $30.1 billion of which was committed when the company filed for bankruptcy. Much of that amount went into an escrow account GM can tap as needed.

Comments

[Leftfield:]

It's amazing what a drop in the bucket the $50 billion for GM and $2.9 billion in guaranteed notes for GMAC is now. The private economy seems a thing of the past now, doesn't it? Somehow, the Treasury, the Fed, Wall St., TBTF's I left out and governments can lean on each other like drunks, pass around $trillions in paper, some of which purports not to be toxic, and hold each other up. That's progress, the economy of the future! All hail!

Oct 29 08:09 AM

[jarco:]

And GMAC's retail bank, ALI continues to show those awful commercials showing young kids being kissed off by the banking industry "small print". How distasteful!

Oct 29 11:53 AM

[user396040:]

Anyone have any thoughts on GMAC bonds - they are still selling at a big discount and have a huge yield. Is there a case to be made that the government will simply not let GMAC go under and that therefore the bonds are underpriced? I try to be non-ideological when I have my investor's hat on, so I am more interested in whether it is safe to rely on the government support of GMAC as opposed to the philosophical (and admittedly interesting) question of whether government support of GMAC is a good idea from a public policy perspective.

Oct 29 02:07 PM

[bc818:]

More 0% financing for everyone! Yipeeee.

Oct 29 02:44 PM

[Russ Krull:]

My thought would be many bond holders of GM and Chrysler probably relied on gov't support for safety.


On Oct 29 02:07 PM user396040 wrote:

> Anyone have any thoughts on GMAC bonds - they are still selling at
> a big discount and have a huge yield. Is there a case to be made
> that the government will simply not let GMAC go under and that therefore
> the bonds are underpriced? I try to be non-ideological when I have
> my investor's hat on, so I am more interested in whether it is safe
> to rely on the government support of GMAC as opposed to the philosophical
> (and admittedly interesting) question of whether government support
> of GMAC is a good idea from a public policy perspective.

Oct 29 10:49 PM

[Moon Kil Woong:]

In the old days if you couldn't float a bond at the risk premium you were at you were toast. Let's just call government backing bonds what it is, a free money givaway which transfers all risk to the taxpayer. They seem to be under the impression that what the public don't see is free. The costs are apparent to me and everyone feeding out of the free money trough.

That's why the Federal Reserve refuses to publish all the companies bonds they backstopped. It would be too easy to identify the swine.

Oct 29 11:25 PM

[Michael Terry:]

GMAC bonds are compelling as the exchange is behind it. The government has shown its willingness to abandon business models and give money to some of the least deserving companies in order to support their investments (read GM and Chrysler). The baby bonds ($25 par) are often cheaper than the institutional ($1000 par) equivalent, they are exchange traded and you can throw a stop on for good measure.


On Oct 29 02:07 PM user396040 wrote:

> Anyone have any thoughts on GMAC bonds - they are still selling at
> a big discount and have a huge yield. Is there a case to be made
> that the government will simply not let GMAC go under and that therefore
> the bonds are underpriced? I try to be non-ideological when I have
> my investor's hat on, so I am more interested in whether it is safe
> to rely on the government support of GMAC as opposed to the philosophical
> (and admittedly interesting) question of whether government support
> of GMAC is a good idea from a public policy perspective.

Oct 30 10:22 AM

[Michael Terry:]

Add the FDIC article to your article on the GMAC bottomless pit and you can see the depth of our analytical government. And yet CIT qualifies for nothing although it is, potentially, more important (difference is it doesn't directly support USA Motors).

Also, interesting how Ally does not say a GMAC subsidiary. Deceptive? Who is the largest shareholder. Hmmmm.

Oct 30 10:27 AM

[Living4Divi...:]

It is not just GMAC that is a bottomless pit, it is all of Detroit. So far, the US Govt has bailed out Detroit massively:
1. GMAC with 12.5B via TARP
2. The GM bailout #1
3. Cash-For-Clunkers

The American consumer is encouraged to buy a shiny new car while she/he is seeing his net worth plummet. Many homeowners are strapped and in danger of losing their houses.

According to the government, cars are more important than houses. When the banks foreclose on the houses, the people can sleep in their shiny brand new cars.

When will the madness of Detroit bailouts stop?

Oct 30 11:00 AM