General Motors' GMAC financial services unit said yesterday it will sell up to $55 billion worth of U.S. auto loans to Bank of America...
DETROIT — General Motors’ GMAC financial services unit said yesterday it will sell up to $55 billion worth of U.S. auto loans to Bank of America over the next five years in a deal to raise cash and help the division finance more vehicles.
Bank of America, the nation’s second-largest bank by assets, will make an initial purchase of $5 billion. In each of the agreement’s five years, Bank of America will purchase up to $10 billion of GMAC’s active U.S. auto-finance contracts.
GMAC will continue to service the contracts. Bank of America will hold the loans and sell them to investors.
Richard Bove of Punk, Ziegel said in a note to investors that Bank of America probably is paying a premium of up to 13 percent for the loans.
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Mark Wasden, a senior analyst at Moody’s Investors Service, said the $55 billion is a fraction of GMAC’s auto-financing assets. GMAC spokeswoman Joanne Krell said the division originates $40 billion in auto loans each year.
“GMAC is not selling its business. The origination and servicing of loans is intact,” Wasden said. “This is an alternative to financing their good-quality assets.”
GMAC, which expects to earn at least $2.5 billion this year, has made more money than its parent GM in the past few years. Last week, GMAC posted net income of $816 million for the second quarter while the overall corporation, led downward by its North American automotive operations, lost $286 million.
But GMAC was hurt in May when Standard & Poor’s Ratings Services and Fitch Ratings downgraded both GM and GMAC’s debt to “junk” status, increasing borrowing costs. The deal with Bank of America will help GMAC as it tries to get its rating upgraded, GMAC said.
“For us, liquidity is oxygen, and it’s critical for us when we’re in this challenged funding environment,” Krell said.