Ally plans $5.9 billion buyback to help lender exit U.S. bailout - Very Ugle Controversy with the Union and Canada What are your thoughts?

Ally plans $5.9 billion buyback to help lender exit U.S. bailout

DETROIT (Bloomberg) -- Ally Financial Inc., the auto lender seeking to repay  a U.S. bailout, is raising $1 billion in a private placement and said it will  pay $5.9 billion in a plan to buy back preferred shares held by the Treasury  Department.

The actions are intended to strengthen the company's finances as it resubmits  its capital plan to federal regulators, Ally said today in a statement. The deal  includes the termination of an option that would have entitled the Treasury to  more common stock if the value of Ally's shares fell below a certain  threshold.

Ally is looking for ways to pay back the $17.2 billion taxpayer rescue  received during the global credit crisis, when subprime home loans threatened to  sink the company. CEO Michael Carpenter refocused Ally on its auto lending  roots, and has been selling assets to raise money while exploring the idea of an  initial stock offering.

"The actions announced today will clear the way for Ally to pursue the next  steps to ultimately exit" the government bailout, Carpenter said in the  statement.

Terms include a cash payment to the Treasury of $5.2 billion to repurchase  $5.94 billion par value of the mandatorily convertible preferred shares, and  $725 million to terminate the option, Ally said. The agreement requires the  funding of the private placement to take place by Nov. 30 and depends on the Fed  approving Ally's revised capital plan, among other conditions, according to the  statement.

U.S. stake

Ally sold about $5.9 billion of convertible preferred shares paying 9 percent  to the government as part of the rescue plan. The U.S. also received $2.67  billion in trust-preferred shares as part of the rescue which have since been  sold to investors. The U.S. still owns common shares in the lender that gave it  a 74 percent stake.

Once today's actions are completed, the Treasury's stake will consist solely  of common stock and the stake will drop to about 65.6 percent, according to  figures in the company's quarterly securities filing.

Ally, formerly known as GMAC Inc., was owned by General Motors Corp. until  2006, when the automaker sold 51 percent to Cerberus Capital Management LP, a  private-equity firm. The holding was later diluted by the U.S. rescue plan. As  part of the bailout, the U.S. took a 74 percent stake in return for a package of  financial aid designed to keep credit flowing to the auto industry and preserve  jobs.

GMAC had expanded into home loans with brands such as GMAC Mortgage and  Ditech, and almost collapsed under the weight of defaults on subprime mortgages,  which were designed for people with the weakest credit. The U.S. poured funds  into Ally to ensure that money kept flowing to the auto industry and to preserve  jobs.

Stalled IPO

Carpenter, who took over as CEO in late 2009, filed a proposed initial stock  offering in March 2011. The plan stalled as he wrangled with creditors of the  bankrupt Residential Capital mortgage unit over how much Ally should contribute  to its revival, and when the Federal Reserve rejected the company's capital plan  this March. Carpenter publicly disputed the Fed's reasoning, while vowing to  resubmit a plan that would win approval.

The company has paid the U.S. about $6.2 billion including the return of  bailout funds plus dividends, and today's actions would bring the total to $12.1  billion, according to the statement.

"Ally has made great progress in restructuring and strengthening its business  in order to repay the taxpayer, and we look forward to continuing to work with  the company to recover the remaining investment," said Tim Massad, Treasury's  assistant secretary for financial stability, said in an e-mailed statement