General Motors and GM Financial have entered into an agreement where GM would provide its financial subsidiary monetary support in certain situations. The agreement “provides for leverage limits and liquidity support to GM Financial if needed, as well as other general terms of support”.
Specifically, GM will provide funding to GM Financial if its earning assets leverage ratio rises above pre-determined levels, with The General extending to GM Financial an intercompany revolving credit facility to provide up to $1 billion of liquidity if needed. The facility, “which is subordinate to GM Financial’s senior unsecured and secured debt”, will replace an existing $600 million line of credit from GM.
Translation: GM Financial is continuing to grow by expanding its loan and lease offerings in North America as well as overseas, and GM will provide the finance arm additional monetary resources, if and when it needs them.
In addition, the agreement provisions that GM will use its commercially reasonable efforts to ensure that GM Financial will continue to be designated as a subsidiary borrower on up to $4 billion of GM’s corporate revolving line of credit.
The support agreement has been filed by GM Financial on Form 8-K with the United States Securities and Exchange Commission.
“GM Financial is a core component of GM’s business and this agreement will strengthen its capability to support GM’s strategy,” said GM President Dan Ammann.
“With the acquisition of the international business, the growth in our North America product portfolio and the diversity of our funding platform, we are well positioned to support GM as its captive auto finance company. The support agreement represents the next step in the evolution of GM Financial and further cements our position as GM’s captive,” said GM Financial President and CEO Dan Berce.
GM Financial was established in 2010 when General Motors purchased AmeriCredit. Since then, the newly-established organization has been undergoing a transformation into GM’s fully-fledged captive finance arm, having expanded overseas with the purchase of the international operations of Ally Financial while significantly increasing its share of GM’s business, which now represents 75 percent of GM Financial’s consumer loan and lease originations.