GMAC says recent actions provide more flexibility to explore alternatives for ResCap

By Jennifer Lanning Drey

Portland, Ore., Jan. 5 - GMAC Financial Services believes it gained additional flexibility to explore strategic alternatives for Residential Capital LLC (ResCap) by undertaking a series of capital and strategic actions that were announced last week, Michael A. Carpenter, chief executive officer of GMAC, said Tuesday during a company conference call held to discuss the actions.

Actions taken at ResCap included the reclassification of some international mortgage assets and businesses, as well as some domestic mortgage assets, from held for investment to held for sale.

The actions required a total capital contribution to ResCap of approximately $2.7 billion in the form of mortgage loans acquired by GMAC from Ally Bank, GMAC debt forgiveness and cash.

GMAC also announced last week that it would get a $3.8 billion capital infusion from the Department of the Treasury.

Speaking during Tuesday's call, GMAC chief financial officer Robert Hull said the company believes the capital support is "sufficient for the time being to fund ResCap's needs."

"We know we have certain covenants we need to preserve there, and we believe this adequately capitalizes them for the near future," he said.

Also during the call, Carpenter said GMAC is "very much aware that ResCap is a drain" and has been considering alternatives for it since he joined its board of directors about six months ago.

According to the CEO, GMAC looked at eight alternatives for ResCap, including a bankruptcy and partial bankruptcy, and concluded that the capital and strategic actions taken were the right course of action to benefit all of its stakeholders.

When asked during the question-and-answer session of the call whether GMAC would be likely to use the same logic to continue investing in ResCap if there is more trouble for it in 2010, Carpenter said, "We have taken a set of actions which we believe ring-fences the downside at least for the foreseeable future, but obviously who knows what the world is going to look like a year from now."

Regarding the details of the strategic alternatives being considered for ResCap, Carpenter said, "From my point of view, it's a relatively blank sheet of paper."

The company will likely sell some of the mortgage assets and will look at strategic alternatives for various other businesses and activities, he said.

Carpenter also noted that GMAC is not in a hurry to take action.

"We're not going to do anything crazy in terms of giving value away, but it's an asset we'd like to figure out how to capitalize on its value either in part or in whole," he said.

ResCap is a New York-based real estate finance company primarily focused on residential real estate markets in the United States, Canada, Europe, Latin America and Australia.

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