Update on the Emergency Economic Stabilization Act of 2008: United States Treasury Takes Action to Bolster GMAC LLC and General Motors Corporation

On December 29, 2008, the United States Treasury (the “Treasury”) announced a two-part program to assist GMAC LLC (“GMAC”) and General Motors Corporation (“GM”). The Treasury’s announcement came ten days after it announced that it was making a $4 billion loan available to Chrysler Holding LLC (“Chrysler”) and a $13.4 billion loan available to GM. GMAC, a major source of automobile financing, has been on the verge of financial collapse¹ as a result of the credit freeze, a weak automobile sales market and major losses incurred by its mortgage lending subsidiary, Residential Capital.

For your convenience, set forth below is a summary of the most-recent actions taken by the Treasury with respect to GMAC and GM.

Purchase of $5 Billion in Senior Preferred Equity from GMAC

In exchange for preferred membership interests in GMAC that will pay cumulative distributions at a rate of 8% per annum (the “Preferred Interests”), the Treasury will invest $5 billion in GMAC. The $5 billion will come from the Troubled Asset Relief Program (the “TARP”) that was created under the Emergency Economic Stabilization Act of 2008 (the “Act”). The distributions shall be payable quarterly, in arrears, on February 15, May 15, August 15 and November 15 of each year.

The Preferred Interests will be senior to common membership interests and pari passu with any other preferred membership interests, other than preferred membership interests which by their terms rank junior to any preferred membership interests. The Preferred Interests cannot be redeemed for a period of three (3) years from the date of the Treasury’s investment, except with proceeds from a Qualified Equity Offering² which results in aggregate gross proceeds to GMAC of not less than 25% of the issue price of the Preferred Interests.

So long as the Preferred Interests are outstanding, GMAC will be prohibited from declaring or paying distributions on (i) junior preferred membership interests, (ii) preferred membership interests ranking pari passu with the Preferred Interests and (iii) common membership interests. Further, so long as any of the Preferred Interests are outstanding, GMAC will be prohibited from redeeming or repurchasing any such interests unless unpaid distributions for all past distribution periods on the Preferred Interests are fully paid.