GlobeSt.com UPDATE: GMAC Unit Sale May Loosen its Ties to GM's Woes

HORSHAM, PA-As GlobeSt.com reported exclusively last week, an investor group consisting of Kohlberg Kravis Roberts & Co., Five Mile Capital Partners and Goldman Sachs Capital Partners has agreed to buy a 60% stake in GMAC's commercial mortgage subsidiary, GMAC Commercial Holding Corp. Locally based GMAC will continue to hold a 40% equity interest in the commercial mortgage business.

While confirmation came only last week, a possible sale has actually been anticipated since late 2003 when Deutsche Bank's planned acquisition of GMAC Commercial Mortgage fell through. And while financial terms still remain under wraps, and while GMAC and KKR spokespeople still refuse to comment (a call to Goldman Sachs was not returned by deadline), some details are trickling out through company statements.

In conjunction with the equity sale, GMACCH will "seek to obtain a stand-alone rating in order to enhance its ability to fund its operations on an ongoing basis." The spokesperson reiterated that a stand-alone rating would give GMAC more flexibility and greater access to capital.

This March Fitch Ratings, among others, downgraded both GM and GMAC and said the GMAC downgrade was related only to GM's performance. Chris Wollf of Fitch tells GlobeSt.com that a stand-alone rating "would get GMAC out of GM's credit umbrella. Its access to capital is being impacted [negatively] by its ownership by GM." Regarding the sale of equity, Wollf says, "I don't want to say whether it's a good idea or not until I know more about the terms and conditions. A rating on a GMAC commercial mortgage bank is under review, awaiting a rating until we evaluate what we knew GMAC was about to do," referring to this equity sale.

Under the terms of the transaction, GMACCH will repay all inter-company loans to GMAC, providing it with "significant incremental liquidity," according to the statement. A GMAC spokeswoman in New York explains, "GMAC has provided funding to the commercial mortgage division, which will be repaid." She tells GlobeSt.com it amounts to about $4 billion. In 2003 at the time of the anticipated Deutsche acquisition, and in published speculation this March about a KKR buy, the reported acquisition cost was in the $1-billion range and included assistance in refinancing debt.

The boards of parent company General Motors and GMACCH have approved the transaction, which is expected to close in the fourth quarter. Once the transaction is complete, the board of GMACCH will include representatives from the investor group along with GMAC and GMACCH. Members of the current GMACCH management team will also invest in the company following completion of the transaction. The commercial mortgage business is GMACCH's largest operating unit and has a servicing portfolio of approximately $250 billion.