Ally Financial Inc. is raising $1 billion in a private placement and is planning to pay $5.9 billion in a plan to buy back preferred shares owned by the United States Treasury Department. Ally’s moves are aimed at boosting the auto lender’s finances as it resubmits its capital plan to federal regulators. The transaction includes the termination of an option that would have allowed the Treasury to get more common stock if Ally's share value drop below a certain level.
The auto lender is seeking for ways to repay a $17.2-billion US bailout during the global credit crisis, when subprime home loans exposed the company to failure. Ally chief executive Michael Carpenter refocused the company on auto lending and has been disposing assets to raise its finances while remaining open to the possibility of an initial stock offering.
Carpenter said in the statement that the actions they have announced will clear the way for Ally to “pursue the next steps to ultimately exit" the government bailout.
Terms include a $5.2 billion in cash payment to the Treasury of buy back $5.94 billion par value of the mandatorily convertible preferred shares, and $725 million to terminate the option.
The deal requires the funding of the private placement to occur by Nov. 30, 2013. The agreement also depends on the Fed giving green light to Ally's revised capital plan, among other conditions. The US still hold common shares in Ally, giving it a 74-percent stake. [source: Bloomberg]