GMAC, ResCap Running Out of Time

Bankruptcy appears to be looming for GMAC LLC and its giant mortgage lending arm Residential Capital LLC, as investors have thus far balked at a $38 billion debt exchange needed to raise sufficient capital for the ailing financial giant to become a federally-chartered bank holding company. The company is extending a deadline for its exchange offer program to 5pm EST Friday evening, in a last-ditch attempt to stave off a bankruptcy filing. According to a filing with the Securities and Exchange Commission on Wednesday, GMAC said that 22 percent of GMAC noteholders and 21 percent of ResCap noteholders had agreed to what Moody’s Investors Service characterized as a “distressed debt exchange,” since replacement bonds are being offered at a substantial discount to par value, and will have longer maturities. The company said it needs roughly 75 percent of investors to agree to exchange their notes in order to raise sufficient capital. “The Federal Reserve has informed GMAC that if GMAC is unable to meet these capital requirements, it will not approve GMAC’s application to become a bank holding company,” the company said in its filing. GMAC also said that it “does not believe it has the ability to make further changes to the GMAC and ResCap offers following the new deadline,” in an attempt to sway investors, who HousingWire‘s sources have suggested are holding out for a better deal and who believe the proposed debt exchange does not include enough concessions from GMAC’s owners. Analysts at Moody’s have surmised that ResCaps future is likely in doubt, regardless of whether GMAC can gain access to TARP funding by becoming a bank holding company. “It is our opinion that ResCap would not be a going concern without support from GMAC,” said Moody’s vice president and senior credit officer Craig Emrick in late November. “Each month requires additional support from GMAC to prevent ResCap from violating its debt covenants and defaulting on its debt service.” Not that GMAC officials have been playing coy about the troubled mortgage lender’s future. ResCap lost $1.9 billion during Q3, forcing GMAC to issue a “going concern” warning about the troubled lender. “Adverse market conditions have made it difficult for ResCap to maintain adequate capital and liquidity levels,” GMAC said in its earnings statement. “As a result, absent economic support from GMAC, substantial doubt exists regarding ResCap’s ability to continue as a going concern.” ResCap’s most recent 10-Q filed with the SEC also suggests that Fannie Mae (FNM) could pull the plug on its seller/servicer contract with the troubled mortgage operation by early next year, over a breach in net-worth covenants with the mortgage financing giant. Write to Paul Jackson at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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