$2 Billion in Funding for GMACCM

Mortgage Wire

January 15, 2004

GMAC Commercial Mortgage has been authorized to issue up to $2 billion in secured liquidity notes, a form of money market financing, to fund its originations and acquisitions of various assets.

The asset-backed commercial paper program is expected to fund a variety of assets originated or acquired by GMACCM or its affiliates, including commercial real estate loans, commercial mortgage loan servicer advances, student loans, rated securities and government agency eligible loans and guaranteed debt, according to Moody's Investors Service, which has given the notes a prime-1 rating.

The program will serve as a warehouse facility, with the assets being held for less than two years, for securitization or sale purposes.

GMACCM was put up for sale earlier this year in a move that GMAC said would provide continued access to capital for the commercial mortgage lender.

However, the unit was taken off the market recently.

At that time, GMAC cited the mortgage lender's "record operating results."

As well, Eric A. Feldstein, chairman and president, GMAC, noted, "In addition, through our recent discussions with major industry participants, we now believe that alternative large-scale funding mechanisms should be available without requiring a sale of the business.

"As a result, we will seek to establish alternative funding mechanisms to provide for the ongoing capital requirements of the commercial mortgage business while providing liquidity relief to GMAC."

Jerry Dubrowski, a General Motors spokesman, told National Mortgage News that the SNL funding is a part of GMAC's "normal funding activities" and that GMAC is still in an "ongoing process" of accessing additional funding.

While he would not give specifics about what form the alternative funding will take, he said that it would be "slightly different from" and "above and beyond" the unit's normal activities and would involve "some form of borrowing against the assets of the business."

Bob Young, a Moody's analyst, said that GMAC has a number of asset- backed commercial paper programs in place which are used to acquire assets that are either retained on balance sheet or funded.

He would not comment on how the SNL program would fit into the mortgage lender's exploration of new financing avenues.

The notes have an initial expected maturity of up to 90 days, which is extendible by 270 days, for a maximum of 360 days.

Among the considerations for the Moody's rating, GMAC's SNL program has a market value swap in place that covers all the non-faulted assets and partially covers defaulted collateral, according to the rating agency.

What this means is that if the assets backing the notes are sold prior to their maturity, the swap arrangement - which involves a "prime rated" counterparty - will cover any loss on the sale or securitization of non-defaulted assets up to the amount needed to repay the investors.

In the case of performing assets, the obligation covers the entire loss on sale, the rating agency said, and in the case of defaulted assets the swap arrangement will not cover price declines that result from the default. ach asset class is also subject to various credit enhancement levels, which are checked when the notes are issued and at least weekly.

If the enhancement is deemed to be not sufficient, GMACCM will be able to contribute additional assets to the program within five days to cure the imbalance, Moody's reports.

The total amount payable under the market swap is limited to the amount required to maintain the credit enhancement levels.

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