Government-controlled auto finance company GMAC has largely been stabilized, but an initial public stock offering that will reduce the taxpayers' stake is probably at least a year away, senior U.S. Treasury officials said on Thursday.
Ronald Bloom, special adviser to Treasury Secretary Timothy Geithner, told the Congressional Oversight Panel that the chances that GMAC Financial Services would need additional government capital had diminished after a successful private debt offering earlier this month.
"We're trying to be very cautious about this and not be more optimistic than warranted but we do believe GMAC has been established," Bloom told the panel, which oversees the Treasury's $700 billion bailout program.
Bloom added that GMAC still faces challenges and the Treasury's principal focus now was to support GMAC management's efforts to refinance debt and make the company viable long-term.
The government holds a 56.3 percent stake in GMAC as a result of capital infusions that have totaled over $17 billion, including a $3.8 billion investment on Dec. 30.
GMAC this month raised $2 billion in unsecured debt on terms comparable to a recent financing completed by Ford Motor Credit, the finance arm of Ford Motor Co. — a transaction considered a critical step toward eventual independence.
Jim Millstein, the Treasury's chief restructuring officer, said he "certainly hoped" that GMAC would not need any more government financing, but the Treasury could convert preferred shares to common equity — a higher quality form of financial capital — if necessary.
A key test will be GMAC's ability to refinance maturing debt, he said.
"The first path toward an exit (of the government stake) requires refinancing balance sheet, and creating a longer runway of liquidity," Millstein said.
"We think that given progress the company has made, the most likely path to facilitate an exit is for an IPO to occur. It's hard to know what the market conditions will be, whether they will be favorable, but my guess is that we're looking at some time at least a year out," he added.
Millstein said the Treasury also may convert some of its preferred shares to common stock to sell in an IPO or afterward to reduce the taxpayers' stake.
GMAC Chief Executive Michael Carpenter, who took over in November as the company negotiated with the Treasury for additional capital, said the firm would not be able to sell $17 billion worth of shares all at once but said a modest IPO could probably be achieved in the next year or two. He added that it was unlikely that GMAC would require more capital from Treasury.
Bloom and Millstein said in their prepared remarks that the Treasury in April would name two members to the GMAC board of directors, to a total of four selected by the government.
They also said the Treasury would end in April its automotive supplier support program, which was previously scaled back to $3.5 billion from an initial $5 billion. The program was put in place to support the industry's supplier base during the bankruptcies of automakers GM and Chrysler last year.
The Treasury officials were questioned by the members of the panel as to why they decided not to put GMAC into bankruptcy along with General Motors and Chrysler, the two car companies for which it provided financing.
Bloom said this would have been costly, with estimates of debtor-in-possession financing running as high as $40 billion to $50 billion, because all of the firm's credit lines would have been cut off by a Chapter 11 bankruptcy reorganization. It also could have threatened the GM and Chrysler bankruptcies by depriving financing from car buyers.
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