Treasury Converts Half of Ally Preferred Stake

NEW YORK (TheStreet) -- The U.S. Treasury said Thursday it's converted $5.5 billion worth of its preferred stock holdings in Ally Financial, the former GMAC, into common stock as part of an effort to hasten its exit of the car financing company.

"Ally has made substantial progress in restructuring its operations and improving its financial performance during 2010, and this transaction will position us to begin to exit the investment," said Treasury Acting Assistant Secretary for Financial Stability Tim Massad in a statement.

The Treasury said the amount of stock being converted represents roughly half of its $11.4 billion worth of mandatorily convertible preferred stake in Ally Financial, and that the transaction increases its common equity stake in the company to 74% from 56%. There is no new investment associated with the conversion.

"The conversion of the MCP stock to common stock better positions Ally to execute its plan to repay the U.S. taxpayer over time," said Michael Carpenter, Ally's CEO, in a press release. "The company has made significant progress in transforming its operations and restoring financial performance this year."

Following the conversion, the Treasury will still have its substantial preferred stake in Ally as well as $2.7 billion in trust preferred securities that were also part of the government's bailout of GMAC. The Treasury said it invested a total of $17.2 billion in Ally through the Troubled Asset Relief Program's "Automotive Industry Financing Program" and it's received $2 billion in interest and dividends to date.

The other Ally Financial common shareholders include private equity firm Cerberus Capital Management and affiliates with an 8.9% stake, third-party investors holding a total of 7.4 percent, the General Motors Trust with 5.9%, and General Motors(GM) itself with 4%.

General Motors' stock closed Thursday's regular session at $36.82, up 2.2%. The iconic car company made a triumphant return to the public markets in late November, pricing 478 million common shares at $33 each. The Treasury still holds a roughly a third of GM's common stock.

--Written by Michael Baron in New York.

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