GMAC bondholder expects talks with Cerberus to extend past Friday's exchange deadline

By Paul A. Harris

St. Louis, Dec. 12 - With a 5 p.m. ET Friday deadline for GMAC LLC's $38 billion bond exchange and the bid to achieve bank holding company status fast approaching, a deal still appeared possible to David D.R. Bullock, managing director of Advent Capital Management, which owns GMAC bonds.

That's because a bailout of General Motors Corp. could entice Cerberus Capital, which controls GMAC, to put up the $2 billion in preferred stock that GMAC bondholders are insisting upon to get the exchange deal across the finish line.

Bullock, while on the broader bondholders' committee, is not privy to the negotiations between Cerberus and the steering committee. But, he speculates that, aside from any difficulties that may have arisen in connection with other more technical issues being negotiated by bondholders, Cerberus may be reluctant to commit the $2 billion until the fate of GM is more clearly defined.

GMAC would most likely suffer materially if GM were to go down and vice versa, he added.

"It's conceivable that there could be negotiations through the weekend, with the exchange being extended for one or two more days," Bullock said.

"In my view if there is a bailout of GM, Cerberus would be much more willing to make the exchange offer contingent upon them putting in $2 billion."

GMAC's credit default swaps reflected a belief that the White House will step in with meaningful assistance for GM, according to a high-yield market source, who added that GMAC CDS tightened throughout the day.

After having gotten as wide as 58 points up front, they ended the day at 52 points up front, and were thus 6 points tighter on the session, the source said, adding that cash bonds likely improved as well.

11th hour deal

If by the end of the weekend GMAC has a deal in hand, its banks would likely be inclined to waive the violations of the credit agreement that are set to kick in on Dec. 29, contingent upon the completion of the exchange deal and the bank holding company bid, Bullock said.

And a deal can get done, he reiterated, adding that 55% of the bondholders, in addition to the 25% that have already participated, are enough to get to the approximately 75% participation level it needs to reach the required $30 billion of total regulatory capital required to achieve bank holding company status.

And the bondholders will get in if Cerberus puts up the $2 billion of equity and the new senior guaranteed notes, which are part of the exchange, come with covenants.

Bank holding company status

Bullock came up with the idea of GMAC applying to the Federal Reserve for bank holding company status in October when the government announced that FDIC-insured banks or bank holding companies would have access to guarantees and preferred capital via TARP.

"A week after we wrote the letter to GMAC they announced their intention to make the application," Bullock said.

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