Bloomberg reported last week — I meant to blog it earlier — that General Motors and Cerberus Capital Management may agree to guarantee part of a $3.5 billion debt package designed to help GMAC’s Residential Capital unit avert bankruptcy. (Costa Mesa-based Ditech.com is a unit of ResCap.)
GM, in a rivalry with Toyota for world dominance of the car market, and Cerberus, the New York-based private-equity firm, may pay debt holders as much as $750 million if ResCap defaults, GMAC said in a filing last week, reports Bloomberg. The cost would be split by the two firms according to their stakes in GMAC. GM sold 51 percent of GMAC to Cerberus-led investors in 2006.
The accord would mark a reversal for GM, which has said it has no obligation to support ResCap after the GMAC unit was battered by subprime mortgage losses. ResCap ranked among the 10 biggest U.S. mortgage lenders last year. The new arrangement is part of a financial plan that should provide enough liquidity for 12 months, GMAC said.
- Ditech owner in cash crunch
- Ditech owner posts $724 million loss, considers sale of units
- Update: ResCap cutting 3,000 jobs
- GM’s profits plunge 90%, GMAC injects $1 billion into mortgage unit
Patrick Flanagan, a former New Century executive, now works for Cerberus Capital. You can bet CCM envisions GMAC as being a market leader once the mortgage industry turns around. Subprime has not disappeared folks.
Like I said when Commissar Galvonovich posted his poll “Will OC lending make a comeback?”, just watch the hedgefunds buying up servicers and originators. The hedgies will be the subprime powerhouses of the future.
General Motor struggling for survival. It is a mistake to spend any more money. Let it goes before it is too late.