GMAC gets help from $21.2B debt swap

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NEW YORK (CNNMoney.com) -- Auto finance company GMAC on Wednesday announced the results of a vote that the company said would help it become better capitalized and viable for the future.

The company, which provides loans to auto dealers and customers, said holders of $21.2 billion of its debt have agreed to a plan to swap their bonds for about $15.7 billion in stock and cash. A total of 59% of GMAC debt holders and 39% of its Residential Capital (ResCap) division investors made the switch.

"We're pleased with the results," said GMAC spokeswoman Gina Proia. "The exchange contributed heavily to our capital raising effort."

GMAC has been trying to raise capital after the Federal Reserve said last week that it would approve GMAC's conversion to a bank holding company. The company said it hoped the exchange program would help GMAC meet the Fed's bank capitalization requirements, which would make it have $30 billion of capital on hand. But the Fed said it made a special exception for GMAC, as the government considers the company critical to the recovery of the U.S. auto industry.

The company is trying to recover from $7.9 billion of losses in the previous five quarters, most of which came from risky subprime mortgage bets made by ResCap. It got some help Monday night when the Treasury Department invested $6 billion in the company through the Troubled Asset Relief Program.

But at least one credit regulator didn't buy GMAC's claim that the the bond exchange worked for the company. Standard & Poor's Rating Services downgraded the company's rating after the bond exchange returned less to investors in stock than they held initially in bonds.

Furthermore, S&P said the company's finances remain on shaky ground even after the exchange.

"The exchange, along with the recent approval of GMAC LLC as a bank holding company, enhances its liquidity and capital positions," said Standard & Poor's credit analyst John K. Bartko in a release. "Still, we believe the exchange and the application for bank holding company status illustrate the gravity of the company's financial position."

Partially owned by Chrysler parent Cerberus and also by General Motors (GM, Fortune 500), GMAC did not release details of how much capital it has raised to date. It previously said it would need 75% of bond holders to change their stakes to equity holdings to reach the $30 billion plateau.

"The 75% was just an initial estimate of what we thought might be needed to achieve the appropriate capital level," said Proia. "Other factors can influence our level of capital."

Proia said the company will likely not announce details about its capital situation until it releases its fourth-quarter financial results in early 2009. She said the Fed has been apprised of GMAC's capital status, and the company doesn't expect to lose its bank holding company status even if it does not reach the $30 billion target level.

GMAC appears to already be on better footing than it was at the start of the week. On Tuesday, GMAC said it would begin issuing loans to customers with credit scores of 621 or higher, after requiring a score of at least 700 since October.

Separately, the Treasury Department confirmed Wednesday that it has finalized the loan transaction and funded the first $4 billion in federal loans to General Motors. Earlier this month, the government announced plans to make a total of $13.4 billion in loans available to GM and Chrysler.

As a condition of the loan, GM submitted a "viability plan" to Congress, which it agreed to implement in order to secure the funds.

In a statement late Wednesday, the company said it is committed to successfully executing its viability plan, and is "confident in the future of General Motors."