General Motors, the parent company of GMAC RFC, says it is exploring the possible sale of a controlling interest in the finance company to a strategic partner.
At this stage, GM is remaining tight-lipped as to who it is in negotiations with.
The goal of the sale, according to GM, is to restore GMAC’s investment grade rating in order to renew the lender’s access to low-cost financing.
In a statement issued last night in the US, GM states:
GMAC said it will continue to evaluate strategic and structural alternatives to help ensure that its residential mortgage business, Residential Capital Corp, or ResCap, retains its investment grade credit ratings.”
Mortgage operations at GMAC earned a record $408m in the third quarter of 2005, up from the $266m in the third quarter of 2004, according to a trading statement released at the same time. GMAC’s residential mortgage businesses benefited from increased gains on sales of mortgages as well as certain investment securities, says its parent.
In addition, improved servicing results, net of hedging activities, contributed to the increase in third-quarter earnings and GMAC’s commercial mortgage business also saw an increase in third-quarter earnings largely because of increases in fee and investment income.
In August 2005, GMAC entered into an agreement to sell a 60% interest in the commercial mortgage business. The transaction, which would protect its investment-grade credit rating and enable GMAC to achieve superior returns, is on track to close around year-end, says GM.
That said, Fitch Ratings has placed GMAC and ResCap on “Rating Watch Evolving” with the rating affecting around $120bn of unsecured long-term and short-term debt.
GM is one of the lowest rated companies among US equities analysts and yesterday’s news had done little to change the minds of Standard & Poor's which is so far keeping GMAC and all its subsidiaries at “Credit Watch”.
The year so far has seen shareholders lose 23.8% in the share price as GMAC’s parent has lurched from one crisis to another.
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