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Even Without TALF, GMAC Will Get Fed Support

Several corners of the consumer lending world are regaining signs of life thanks to the Term Asset-backed securities Loan Facility (TALF). GMAC LLC, the auto financing company that was asked to raise $11.5 billion of new capital following the stress test of its balance sheet, isn't one of them. Nevertheless, it doesn't seem to be worried and remains confident the U.S. government will support the company one way or another.

TALF was created at the end of last year by lawmakers in Washington to bolster confidence in a securitization market badly damaged by the credit crisis. Ultimately, the goal of TALF is to bring borrowing costs down. It has taken some time for the program to prove efficient. Now, however, more and more companies like J.P. Morgan and General Electric are using TALF to securitize credit card loans. Volkswagen and Harley-Davidson have also taken advantage of the program to issue bonds backed by their receivables. And the program was even expanded to commercial mortgage-backed securities this past week.

For most U.S. auto lenders though, TALF hasn't been much help. To qualify, loans have to be rated AAA, but most of those from auto lenders, including GMAC, aren't. So earlier this week, executives at the American Financial Services Association, which represents the lending arms of General Motors, Ford Motor and Chrysler, asked the White House and Treasury Department for a change in the credit ratings requirements of the program.

Sure, it would be good news for GMAC, in which GM is a minority shareholder, if ratings requirements were lowered so it could participate in TALF, but according to its first-quarter earnings conference call earlier this week, the fact that this isn't the case didn't seem to be such a big deal. Which can only mean one thing: GMAC has other avenues to obtain government support.

Even though sales in the auto industry are down, it looks like GMAC will be financing more, not less auto deals. As part of the reorganization of Chrysler, GMAC will fund new auto sales with both dealers and consumers of Chrysler. Additionally, as long as GM is still around, GMAC will also continue to do the same with the auto maker's dealers and consumers.

"The U.S. government has indicated that it intends to support GMAC in this effort by making liquidity and capital available to support the Chrysler business," Rob Hull, GMAC chief financial officer, said during the conference call, although details of such a support haven't yet been finalized.

Other public-finance programs could also help provide the needed funds to GMAC. For one, the Treasury Asset Relief Program (TARP) could step in. "That would probably rank up high," Hull said. The $11.5 billion capital needed at GMAC may even already include money to help fund new auto loans in addition to maintain capital at healthy levels. GMAC has already received $5 billion through TARP when it became a bank holding company late last year.

Less likely but still a possibility, GMAC has also applied to issue debt guaranteed by the Federal Deposit Insurance Corporation (FDIC) through the Temporary Liquidity Guarantee Program (TLGP). Hull noted GMAC could issue between $5 billion and $10 billion if the application is successful. GMAC wasn't included in the list of 19 financial institutions deemed too big to fail for nothing.

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