GMAC-Citi Deal Leads Funding Charge

New $21.4-billion asset-backed facility, doubling old line, will help carmaker's credit arm deal with the market reversal.
Stephen TaubSeptember 12, 2007

The rush is on among financial giants to prove they have the backing to thrive through the credit crunch. And GMAC LLC moved toward the front of the pack with an agreement more than doubling the $10-billion in asset-backed funding it had arranged last year with Citigroup.

The new arrangement provides a Citigroup loan facility of up to $21.4 billion to General Motors Corp.’s financing arm, which is now 51-percent controlled by private equity investors led by hedge fund giant Cerberus Capital Management LP. Citigroup is one of the controlling GMAC investors.

According to a regulatory filing, the new facility replaces the asset-backed financing arrangement that has been in place with Citi since August 2006. A total of $14.4 billion will become available immediately, with the additional $7 billion becoming available if certain conditions are met, according to GMAC.

The facility includes commitments to provide funding for U.S. automobile-related assets, mortgage assets, and other assets of GMAC and its subsidiaries.

Investors seemed to like the arrangement, as GMAC bonds rallied on the news, according to Bloomberg News. “It certainly helps GMAC out of a tight spot,” Nigel Sillis, director of fixed income and currency research at Baring Asset Management in London, told the wire service.

Gina Proia, a GMAC spokeswoman for GMAC, told Bloomberg: “With the current global credit market, the company decided this funding was prudent. This gives us additional liquidity. It bolsters our financial flexibility.” She said that the new financing package has a one-year term, compared with a three-year term for the previous facility.

Most of the funding will be used for car loans and related securities, according to Proia.