GMAC bank bid failing, bankruptcy may be next

By David Mildenberg and Caroline Salas
Bloomberg News
Wednesday, December 10, 2008

http://www.bloomberg.com/apps/news?pid=20601087&sid=aOYi3RTRwuuQ&refer=home

NEW YORK -- GMAC LLC, the auto and home lender seeking federal aid, hasn't obtained enough capital to become a bank holding company and may abandon the effort, casting new doubt on the firm's ability to survive.

A $38 billion debt exchange by GMAC and its Residential Capital LLC mortgage unit to bolster the company's finances didn't attract enough participation, GMAC said today in a statement. That leaves GMAC short of the $30 billion in regulatory capital demanded by the Federal Reserve for the bank conversion, the lender said.

GMAC, the primary lender to General Motors Corp. dealers, has pinned its recovery on becoming a bank and getting access to federal rescue programs. The company gave debt holders three more days to consider the exchange offer, adding that if it doesn't complete the swap and win Fed approval by Dec. 31, "it would have a near-term material adverse effect on GMAC's business, results of operations, and financial position."

"There's an extremely high likelihood that they would have to file for bankruptcy" if they can’t get access to the Treasury's rescue fund by year-end, said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, in a Bloomberg Television interview.

If GMAC files, the restructuring will probably take three to 12 months, according to Mikelic.

Less than 25 percent of GMAC's and ResCap's existing debt covered by the exchange offer has been tendered, the statement said. Detroit-based GMAC needs about 75 percent participation for the plan to work, the statement said. If the goal isn’t met by the end of this week, GMAC intends to withdraw its Fed application.

... Debt Market

GMAC’s $1 billion of 5.85 percent debt due in January 2009 tumbled about 5 cents to 89 cents on the dollar at 10:15 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 156 percent.

General Motors sold 51 percent of GMAC in November 2006 to a group led by Cerberus Capital Management LP, a New York private equity firm. GM has warned it may go bankrupt unless Congress approves a bailout plan, and GMAC has lost $7.9 billion over the past five quarters as GM sales slumped and home buyers failed to repay subprime mortgages.

Ming Shao, director of fixed-income at DuPont Capital Management Corp. in Wilmington, Delaware, said he's not sure if GMAC can avoid bankruptcy if the bank conversion fails.

"The exchange might be the best way for the company to restructure itself," Shao said. "We prefer to restructure outside of bankruptcy." Shao manages $5 billion in fixed income including ResCap bonds he tendered.

... Capital Needs

GMAC applied for a bank holding company charter on Nov. 20 and announced plans to exchange the $38 billion of notes issued by the company and ResCap. To obtain bank holding company status, GMAC must raise $2 billion of new capital and have at least $30 billion in total regulatory capital, the company said.

Within a week after the exchange was announced, a group of bondholders hired Andrew Rosenberg, a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP to represent them in opposing the offer. Rosenberg got Blackstone Group LP to pay investors almost $225 million more than face value for the bonds of Equity Office Properties Trust in 2007.

GMAC proposed buying back notes for as little as 55 cents on the dollar in cash, or letting holders swap their debt for an equivalent amount of senior notes and preferred stock.

Owners of $6.3 billion of GMAC notes and $2 billion of ResCap notes have agreed to the exchange.

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