March 24, 2006

G.M. Sells Big Stake in Loan Unit

DETROIT, March 23 — General Motors sold a 78 percent stake in its commercial mortgage business, one part of its vast financing division, to an investor group on Thursday, the latest move in the struggling automaker's efforts to raise cash. The deal includes $1.5 billion in cash and the repayment of about $7.3 billion in intercompany loans.

The sale came a day after G.M. announced a landmark deal with the United Automobile Workers union that will offer buyouts to all 113,000 of its hourly workers in the United States.

G.M. also will pay for buyouts of 13,000 workers at the Delphi Corporation, its former parts operation.

The stake in the mortgage business, GMAC Commercial Holding, was sold to a group of investors that includes Kohlberg Kravis Roberts & Company, Five Mile Capital Partners and Goldman Sachs Capital Partners. The mortgage company repaid $7.3 billion in loans to G.M.'s financing division, the General Motors Acceptance Corporation.

The sale was for a bigger share of the unit than the 60 percent stake G.M. said it would sell to the group in August. The unit will be renamed Capmark Financial Group in the second quarter.

The deal comes as G.M. is also negotiating with potential buyers the sale of a controlling interest in the rest of G.M.A.C. for an estimated $11 billion.

That effort is taking longer than some analysts had initially expected, in part because G.M. wants to retain a large minority interest and some measure of control over the financing business, which has played a critical role in G.M.'s marketing and auto incentive programs by providing cheap auto loans. Efraim Levy, an equity analyst at Standard & Poor's, said the issue of control might make some buyers hesitant to bid for G.M.A.C.

"If you want to buy control, you want to have control," Mr. Levy said. "And G.M. wants to make sure the strong relationship between G.M. and G.M.A.C. remains. It's kind of tough to accomplish" both.

Mr. Levy contends that G.M. would be better off keeping G.M.A.C., which he called the "golden goose that is driving their profits" because the unit, which makes auto and home loans, has been a critical source of earnings as the auto business has lost market share to foreign rivals like Toyota.

In 2005, G.M. as a whole lost $10.6 billion, with most of that in its North American auto business. The discovery of an accounting error prompted the company late last week to increase its reported loss for the year by about $2 billion and to delay its annual report.

G.M., whose credit ratings were lowered to junk status last year, would like to sell G.M.A.C., in part to preserve the division's investment-grade ratings, which would allow it to continue borrowing money on Wall Street at far lower rates than the automaker can on its own.

Shelly Lombard, an analyst with Gimme Credit, a research firm, said that the goal would best be achieved by a sale to a financial services giant like Bank of America, but that banks and other large lenders were wary of entering the kind of long-term partnership G.M. is seeking, given the company's shrinking auto business, mounting pension liabilities and other challenges.

"G.M.A.C. is a huge entity," Ms. Lombard said, "and most of the buyers that would give them an automatic investment grade rating are not interested."

So, instead, G.M. is entertaining bids from investor groups that are led by private equity firms and include financial institutions as passive partners, Ms. Lombard said. "It was too attractive an asset for private equity buyers not to make a run at it," she added.

The agreement with the U.A.W. and Delphi should help allay some of the concerns of potential G.M.A.C. buyers, but the sale of the commercial lending unit will probably have little, if any, impact on the negotiations, analysts said.

The deal announced yesterday leaves G.M.A.C. with about a 21 percent stake in its commercial mortgage business. G.M.A.C. also will invest an additional $250 million in Capmark's preferred stock and will have two seats on Capmark's 15-member board.

G.M.A.C.'s chairman, Eric A. Feldstein, said in a statement that G.M.A.C. expected strong returns on its remaining investment, but added that the $8.8 billion would allow the finance unit to "deploy a significant amount of capital to other critical areas of our business."

Capmark's chairman will be Dennis D. Dammerman, a former vice chairman of General Electric and a former chief executive of GE Capital.

G.M. has sold interests in several subsidiaries in an effort to raise money to run its operations. The company also plans to close all or part of 12 plants and eliminate 30,000 jobs through 2008.

Analysts estimate the employee buyout agreement, announced Wednesday, could cost G.M. up to $2 billion, depending on how many workers take part.

Micheline Maynard reported from Detroit for this article and Vikas Bajaj from New York.

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