GMAC May Face `Substantial Difficulty,' Cerberus Capital Says

Feb. 14 (Bloomberg) -- GMAC LLC, the auto and mortgage lender controlled by Cerberus Capital Management LP, may run into ``substantial difficulty'' if credit markets don't improve, said Stephen Feinberg, founder of the private-equity firm.

``We have detailed contingency plans in a continuing worsening environment,'' Feinberg wrote in a Jan. 22 letter to investors, a copy of which was obtained by Bloomberg News. ``However, if the credit markets continue to decline and we find ourselves in a prolonged environment of capital market shutdown, GMAC could run into substantial difficulty.''

GMAC, the former financing arm of General Motors Corp., lost $2.3 billion last year as record U.S. home foreclosures led to an increase in bad loans and auto-lending profit declined, the Detroit-based company said Feb. 7. GMAC is in talks with potential buyers about parts of its Residential Capital mortgage unit, which posted a $4.3 billion loss.

``The good news is that we bought GMAC cheaply enough so that even with all the bad news in the mortgage market and credit markets, we still are in reasonable shape with our overall investment,'' Feinberg, 47, wrote in the nine-page letter.

The letter outlines worst-case scenarios for investors, Cerberus partner Tim Price said in an interview today.

``The point of the letter was to underscore the risks in the investment,'' Price said, referring to GMAC. ``We don't expect everything we outlined to go wrong and we remain bullish on the investment.'' READ MORE