GMAC Debt Swap May Get 75% Participation, Lawyer Says

GMAC LLC may reach its goal of getting 75 percent of bondholders to participate in a debt swap designed to avert a collapse of the auto and home lender, said a lawyer for bankers handling the exchange.

“I’m cautiously optimistic,” said James Clark, partner at Cahill, Gordon & Reindel LLP in New York, who represents firms including Bank of America Corp. and Citigroup Inc. that are managing the deal. Additional holders have tried to tender and their transactions weren’t able to be processed by the bonds’ custodians in time for the last early deadline, which expired yesterday, Clark said. GMAC was “well short” of its goal when the deadline passed and “significant additional tenders are necessary,” he said.

GMAC, the primary lender to General Motors Corp. dealers, extended the $38 billion exchange’s early delivery deadline yesterday to Dec. 19, the fifth extension since announcing the deal. The Detroit-based company said 58 percent, or $16.6 billion, of GMAC notes, and $3.5 billion, or 37 percent, of securities issued by its Residential Capital LLC mortgage unit have been tendered now that terms were improved. As of Dec. 12, holders of only about a quarter of the debt had signed up.

The exchange is part of GMAC’s plan to convert to a bank holding company and gain access to the Treasury’s $700 billion rescue fund and a program that would allow it to sell bonds backed by the government. If the exchange isn’t completed by the end of the year, there is a “significant risk” it will default on its debt, GMAC said in a filing last month.

Amended Terms

The original proposal, announced Nov. 20, asked holders to swap for as little as 55 cents on the dollar in cash or a combination of new notes and preferred stock. Preferred securities count as regulatory capital, so swapping bonds for stock would help GMAC reach its goal.

If the exchange fails, GMAC will come up short of the $30 billion in regulatory capital demanded by the Federal Reserve to win approval as a bank holding company.

“It is extremely important that every bondholder of GMAC and ResCap tender their bonds as soon as possible in order to satisfy the government’s regulatory capital position,” Clark said. “Until we know we have the bonds in we don’t know we’re going to get there.”

GMAC amended the terms of the swap after holders of $10.5 billion of GMAC bonds formed a committee to oppose the exchange and hired Andrew Rosenberg, partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP. GMAC increased the dividend on the preferred stock, made the deal contingent upon its becoming a bank, and added restrictions on liens, subsidiary guarantees and asset sales.

Back-Office Issues

Rosenberg said Dec. 15 the committee had agreed to tender their bonds. Another $5 billion of holders have indicated they would follow the committee’s recommendation, Clark said. Including the $6.8 billion of GMAC notes that participated before Dec. 12, that would bring the amount of GMAC debt tendered to $22.3 billion, or more than 75 percent of those notes.

Clark said the goal may be within reach, based on the number of calls banks have received from bondholders who couldn’t tender on time.

“It’s a back-office, mechanical issue,” Clark said. “It just takes time for them to get the instructions, find the bonds in the system, and make arrangements.”

GM sold 51 percent of GMAC in 2006 to a group led by private equity firm Cerberus Capital Management LP. GM is also seeking a federal bailout to avert bankruptcy.