GMAC Receives $5 Billion of Bailout Funds

By Christopher S. Rugaber

WASHINGTON -- The Treasury Department said that it will provide $5 billion to GMAC Financial Services LLC, the ailing financing arm of General Motors (GM Quote), in a move that's expected to stave off a bankruptcy protection filing at the company but also severely limit GM's control over it.

In exchange for the slice of the $700 billion bank rescue package, the government will receive preferred shares that pay an 8% dividend and warrants to purchase additional shares in return for the money, the department said.

Treasury also said it will lend up to $1 billion to General Motors so that the company can purchase additional equity that GMAC is planning to offer as part of its effort to raise more capital.

The assistance is part of a larger government effort to aid the auto industry and is on top of the $17.4 billion in loans the Bush administration agreed to provide to the industry Dec. 19, a Treasury Department official said.

Analysts had speculated that if GMAC didn't obtain financial help it would have to file for bankruptcy protection or shut down, which would be a serious blow to GM's own chances for survival.

Last week, the Federal Reserve approved GMAC's application to become a bank holding company, which made it eligible to receive money from the financial rescue fund. The Fed's approval was contingent on GMAC raising additional capital.

JPMorgan's(JPM Quote) Himanshu Patel said the moves show how Treasury is taking a comprehensive look at GM's entire business and make a bankruptcy protection filing and liquidation extremely unlikely.