As posted by: Wall Street JournalA deadline for GMAC LLC investors to swap bonds for lesser-valued debt expired Friday, and Wall Street awaited word of what would happen next.
The $38 billion debt-restructuring proposal is part of the lender's efforts to become a bank-holding company, which will allow it access to federal funds amid tight credit markets.
GMAC has been weakened by the billions of dollars it pumped into its mortgage unit, Residential Capital, which was a large subprime lender.
GMAC, which is co-owned by General Motors Corp. and an investor group led by private-equity firm Cerberus Capital Management LP, has been locked in negotiations with bondholders for weeks. Before Friday, GMAC already had extended the deadline for the debt exchange two times and sweetened the terms of the offer.
"There's some posturing going on here. Both bondholders and the company are playing hardball," said Mark Wasden, an analyst at Moody's Investors Service. GMAC and Cerberus representatives declined to comment. General Motors spokeswomen didn't return calls for comment.
Hope persisted that the company would improve the deal for bondholders. Law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP represents a committee of GMAC bondholders. Firm lawyer Andrew Rosenberg didn't return phone calls seeking comment.
Bondholders have resisted the proposed exchange, with less than a third of the number necessary agreeing to the plan as of Wednesday; some bondholders have said the plan doesn't ask enough sacrifice from GMAC's owners. They want equity holders to put in their share of new capital.
Investors are being offered combinations of new GMAC notes, GMAC preferred stock and cash in a deal that will cut GMAC and its mortgage unit's debt levels. The lower debt level will free up capital, allowing GMAC to satisfy conditions attached to its quest to become a bank-holding company.
As of Wednesday, GMAC had received 22% or less of existing debt securities, far below the 75% it needs for the debt exchange to go through. At the time, investors said they were reluctant to participate in the debt exchange because they felt that they were being asked to shoulder too much of the burden.
The lender's most actively traded debt -- its 5.85% bonds maturing in 2009 -- were up slightly late Friday afternoon at 81 cents on the dollar, according to bond-trading platform MarketAxess.
The success of the proposed debt exchange is essential to GMAC, which may face bankruptcy protection if it isn't completed, and it also would benefit GM. The auto maker suffered a setback Thursday after an auto-industry bailout plan collapsed in the Senate.
Cerberus, which is also the parent of Chrysler LLC, owns a 51% stake in GMAC, purchased in 2006 for about $14 billion. GM owns the rest.
GM has warned that it could run out of cash within weeks without government aid. The company burned through $6.9 billion in cash in the third quarter. Even if GM gets bailout aid, financing for customers and dealers to keep the business running is critical.
Troubles at GMAC have put the auto maker at a disadvantage. GM said last month that its 45% sales skid in October was fueled by GMAC's restricted lending, which cost GM anywhere from 45,000 to 60,000 in sales in the month. More capital will mean GMAC will be able to continue lending to GM dealerships, which borrow money to put new cars in their lots.
—Kate Haywood contributed to this article.
Treasury Yields Hit Lows on Recession Fears
Treasury yields fell to lows as fears about the length and depth of the U.S. recession persisted, though the rally in prices was tempered by renewed hopes for an auto-industry rescue. Late in New York Friday, the 10-year note was up 17/32, or $5.3125 per $1,000 face value, at 110 3/32, to yield 2.590%, from 2.648% Thursday. The 30-year bond was up 19/32, or $5.9375 per $1,000 face value, at 127 24/32, to yield 3.062%. The two-year note yielded 0.785%. The 10-year yield fell as low as 2.47%, a 45-year low, in Friday trading while the two-year yield had reached 0.66%. Ecuador's decision to withhold an interest payment due on the country's 2012 global bonds also boosted Treasurys as investors sought out a haven. Deborah Lynn Blumberg
