GMAC LLC, the lender to customers and dealers of General Motors Corp., sweetened terms on a debt swap designed to save the firm from bankruptcy and extended the deadline for a fourth time to lure more investors, Bloomberg reported.
Holders of a "substantial portion" of $38 billion in GMAC debt agreed in principle to new terms including an improved interest rate and a capital contribution by its owners, Detroit- based GMAC said in a statement. The deadline was extended from yesterday to Dec. 16 for early delivery, with final expiration set on Dec. 26.
The swap would pave the way for GMAC to convert to a bank holding company and gain access to U.S. rescue programs. Even with the new accord, GMAC remains short of the 75 percent participation needed for its recovery plan to work. So far, only a quarter of the affected debt has been tendered. Without the swap, GMAC has said its application to become a bank will fail, and analysts have said bankruptcy would likely follow.
The agreement "represents substantial progress toward attaining the estimated overall participation that would be required," GMAC's statement said. "However, significant additional participation will also be required."
The debt swap includes notes issued by GMAC and its Residential Capital LLC mortgage unit. Amended terms include increasing the annual dividend to 9 percent, according to the statement, which didn't specify the original level. The rate drops to 7 percent after GMAC raises at least $2 billion of new capital, with $750 million contributed by GMAC's existing shareholders. The accord also restricts liens, subsidiary guarantees and asset sales.
The proposal previously asked holders to swap for as little as 55 cents in cash or a combination of new notes and preferred stock. Before today's announcement, GMAC had extended the deadline for debt holders three times.
GM, which sold 51 percent of GMAC in 2006 to a group led by private equity firm Cerberus Capital Management LP, is also seeking a federal bailout to avert bankruptcy.
GMAC has been crippled by losses over the past five periods that total $7.9 billion, driven by slumping sales at GM and defaults on subprime home loans at ResCap.
With auto sales at their lowest since World War II and the U.S. in its worst housing crisis since the Great Depression, GMAC and ResCap have little means to revive sales and have been shut out of credit markets.
GMAC has $540 million of bonds due this month and another $11.6 billion that mature in 2009. Without gaining bank status, GMAC would lose its "last lifeline," said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, in a Dec. 10 Bloomberg Television interview.