Archive for December, 2008

GMAC eases burden with $21.2 billion debt swap (Reuters)

Wednesday, December 31st, 2008 | Finance News

NEW YORK (Reuters) –
GMAC, the General Motors Corp (GM.N) financing affiliate that received a $6 billion infusion from the government, completed a multibillion dollar debt swap on Wednesday designed to bolster its capital.

The lender said holders of $21.2 billion of debt will swap their stakes for $15.7 billion of new securities plus cash. The exchange will ease GMAC's debt burden, though the lender fell short of its goal of 75 percent participation in the roughly $38 billion swap, instead getting about 56 percent.

GMAC's offer required investors to accept less than face value for their holdings. It was designed to enable Detroit-based GMAC to become a bank holding company, allowing it to tap low-cost funding and helping to assure its survival.

Pressure to complete the offer eased after the Federal Reserve awarded bank holding company status to GMAC on December 24, and the Treasury Department announced the $6 billion infusion five days later. Part of that money comes from the U.S. Treasury's $700 billion Troubled Asset Relief Program.

On Tuesday, GMAC said it would use the infusion to make loans to a wider range of borrowers. It also made some payments to GM for vehicle financing that it had previously deferred, GM said in a U.S. Securities and Exchange Commission filing.

GMAC is the main lender to GM customers, and restoring its health is key to helping the nation's largest automaker stay afloat.

Private equity firm Cerberus Capital Management LP (CBS.UL) is GMAC's other major owner.

GMAC accepted tenders from holders of $17.5 billion, or 59 percent, of old GMAC notes, and $3.7 billion, or 39 percent, of notes from its Residential Capital LLC mortgage unit.

It said the GMAC investors will receive $11.9 billion of senior guaranteed notes and $2.6 billion of preferred stock that never matures, while the ResCap investors will receive $1.17 billion of new GMAC notes.

GMAC is trying to recover after $7.9 billion in losses in the 15 months ended September 30. Most of the losses came from ResCap, but credit problems on auto loans were also worsening.

On Tuesday, GMAC said it would begin making loans to people with credit scores of 621 or higher, significantly easing a requirement for a 700 score that it had imposed in October.

The median U.S. credit score is 723, according to Fair Isaac Corp's (FIC.N) myFICO unit.

In Wednesday morning trading, GMAC's 6.875 percent notes maturing in 2012 rose 2 cents on the dollar to 76 cents, yielding about 16 percent, according to MarketAxess.

GM shares fell 7 cents to $3.73 on the New York Stock Exchange.

(Reporting by Jonathan Stempel; additional reporting by Walden Siew; editing by John Wallace and Jeffrey Benkoe)

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Mortgage applications remain at 5-year highs (AP)

Wednesday, December 31st, 2008 | Finance News

WASHINGTON – Mortgage applications remained at their highest level in more than five years last week, as borrowers took advantage of attractive rates and rushed to refinance their home loans.

While low rates are a great opportunity for borrowers with solid credit and plenty of equity in their homes, those in danger of foreclosure are sidelined, and defaults are expected to keep rising in the coming months.

The Mortgage Bankers Association said Wednesday its weekly application index was essentially unchanged for the week ending Dec. 26. The index came in at 1245.7 from 1245.4 a week earlier. Applications surged earlier this month to the highest level since July 2003, when refinancing activity boomed at the peak of the housing market.

More than 80 percent of applications came from borrowers looking to refinance at more affordable rates, the trade group said. Refinance volume dipped by 0.4 percent, while purchase volume rose 1.4 percent.

The trade group's application index is still below its peak of 1,856.7, reached in May 2003 at the height of the housing boom. The survey provides a snapshot of mortgage lending activity involving mortgage bankers, commercial banks and thrifts. It covers about half of all new residential mortgage loans each week.

An index value of 100 is equal to the application volume on March 16, 1990, the first week the MBA tracked application volume.

Interest rates have plunged since the Federal Reserve said last month it would buy up to $500 billion in mortgage-backed securities in an effort to bolster the long-suffering housing market. The Fed, starting early next month, will buy securities guaranteed by the government-controlled home loan giants Fannie Mae, Freddie Mac and Ginnie Mae, a federal agency.

The average rate for traditional, 30-year fixed-rate mortgages decreased to 5.03 percent from 5.04 percent a week earlier, according to the MBA report. That was the lowest point in the weekly survey since rates fell to 4.99 percent in June 2003.

The average rate for 15-year fixed-rate mortgages fell to 4.79 percent from 4.91 percent a week earlier, while the average rate for one-year adjustable-rate mortgages fell to 6.15 percent from 6.36 percent.

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Food and drug retail stocks a better buy in 2008 (AP)

Wednesday, December 31st, 2008 | Finance News

PORTLAND, Ore. – Shares of grocery and drug retailers fell in 2008, but not as much as the broader market, as shoppers spent what little money they did have on staples like groceries and prescriptions.

Still, both segments faced challenges. Nearly all grocers grappled with higher prices on goods and elevated transportation costs. Both drugstore chain Walgreen Co., after a failed acquisition attempt, and competitor Rite Aid Corp., dealing with mounting losses, had management shake-ups.

But the largest pressure of the year - on consumers' wallets - created a boost for some. People ate out less and dined in more, making grocery stores one of the bright spots in retail for the year.

"I think with consumers who face tighter credit, they are looking at food as an affordable luxury," said Charles Cerankosky, an analyst at FTN Midwest Securities Corp. "They are willing to defer a new car or defer redecorating, but they are still looking at quality food."

The Dow Jones U.S. Food & Drug Retailers Index fell 33 percent for the year while the broader market had a deeper slump. The Standard & Poor's 500 index fell 39 percent and the Dow Jones Total Market Index lost 40 percent.

Grocers like Kroger Co. were among the top performers in the sector, building on recent acquisitions. Despite increased competition from other grocery chains and discounters, Cincinnati-based Kroger shares fell just 2.5 percent.

Safeway Stores Inc. invested heavily in reformatting its stores and saw the effort pay off with modest sales and earnings gains throughout the year. But the Pleasanton, Calif.-based company's resistance to cutting prices until late in the year spooked some investors who were watching recessionary pressures build on consumers. Safeway shares fell 32 percent in 2008.

High-end grocer Whole Foods, which is known for its gourmet offerings, had a very difficult year. Its stock lost 77 percent of its value as the company struggled to draw shoppers eager to cut expenses. It also continued an antitrust battle against the Federal Trade Commission over its acquisition of Wild Oats Markets, which remains in legal limbo.

Drug retailers took steps to deal with the struggling economy. Rite Aid and CVS each launched generic drug savings programs to cope with the economic slump. Walgreen relaunched its own program, which began in 2007, and started marketing it more aggressively to customers.

To be sure, drugstores didn't feel as big of a bite from the sagging economy as other retailers, but their stocks slumped as Wall Street saw hints of tighter consumer spending, decreasing sales of name-brand prescriptions and as some dealt with company-specific issues.

Camp Hill, Pa.-based Rite Aid was the biggest loser in the group. It replaced three top executives in September after its second-quarter loss nearly tripled due to weak results from its Brooks Eckerd stores. Rite Aid shares dropped more than 80 percent during the year and the company is preparing to perform a reverse stock split to retain its New York Stock Exchange listing.

CVS Caremark Corp. shares lost 29 percent. In August, Woonsocket, R.I.-based CVS agreed to buy Western drug store operator Longs Drugs Stores, acquiring more than 500 stores in California, Hawaii and Nevada.

Walgreen made a slightly higher offer that was later withdrawn over finance and antitrust concerns. Two days later, the Deerfield, Ill., company said Chief Executive Jeffrey Rein was retiring. Walgreen shares fell about 38 percent for the year and are trading at their lowest levels since 2000.

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