GMAC Finance Soldiers On

It looks grim for GMAC Finance (GMAC): their quest to become a bank holding company is on the rocks again. I'm not counting them out, though - they don't give up easy.

GMAC (which is controlled by Cerberus Capital) owns a Utah-chartered bank called GMAC Bank. Ironically, the profitable GMAC Bank is a subsidiary of GMAC's mortgage-backed securities business, Residential Capital (ResCap). What GMAC would like to do is rid itself of ResCap, own GMAC Bank directly, and turn GMAC Bank into a regular deposit-taking institution. Before this can happen, GMAC needs to get approval from the Fed to be a bank holding company. The Fed won't grant GMAC's application unless GMAC improves its debt-to-equity ratio.

So, on November 20th, GMAC made offers to buy outstanding debt from large bondholders (see 8-K, 11/20/09). The debt tender period ended on December 19th with not enough takers. Plan B involved stronger incentives. GMAC attempted to coax recalcitrant bondholders who hedged their investment in GMAC by buying credit default swaps (see 8-K, 12/19/08). GMAC planned a debt-for-equity swap with ResCap that would, essentially, make all the CDS' valueless. Pacific Investment Management, a major bondholder, wasn't intimidated. They still said "no" to the debt swap.

Presumably there's a Plan C?