GM unit selling billions in loans to Scotia

GMAC sharing its parent’s pain Junk credit status brings new focus

Aunit of the Bank of Nova Scotia is riding to the rescue as General Motors Acceptance Corp. struggles with its sagging credit ratings.

Investment banker Scotia Capital has agreed to buy up to $ 20 billion ( U. S.) of retail car loans over five years from the financing arm of General Motors Corp., starting with $ 3 billion this month. GMAC has had to pay more interest for money to lend out to buyers of GM cars and trucks since credit ratings for the financing company and its moneyparent were cut to junk status in May. So, GMAC is transforming itself from a direct lender to a company that originates loans and administers them for institutions considered to be less risky borrowers. GMAC made a similar deal for $55 million with the Bank of America Corp. in July.

Stephen McDonald, co-chief executive officer of Scotia Capital, said yesterday the deal is significant by any measure, but just one of many his company has done with GMAC in Canada, the U.S. and Mexico over 50 years. He would not disclose what portion, if any, of the portfolio of retail auto loans will be sold off in turn to investors or other institutions. Nor would he discuss the return Scotia Capital expects to earn.

“ I think you should assume we have some options,” said McDonald. “ We are looking at an acceptable return for the risk we are taking on.”

“ This transaction reflects Scotia Capital’s strength and experience with automotive- finance companies and asset-backed transactions in providing the right financial solution to important clients such as GMAC,” McDonald said in a news release. “ We are pleased to add these high- quality U. S. retail assets to our portfolio and to demonstrate our unique capability to meet the needs of clients who operate across Canada, Mexico and the U. S.” GMAC expects to sell a total of $ 15 billion of auto loans to secondary lenders this year.

Sanjiv Khattri, GMAC’s executive vice- president and chief financial officer, said the strategy allows the company to “ redeploy capital to our growing mortgage and insurance businesses while supporting our . . . mission of selling GM’s highquality cars and trucks.”

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