December 11, 2008 11:39 AM

GMAC On Verge of Bankruptcy?

Posted by Zach Lowe

Last month, GMAC, the largest lender to General Motors, hired Wachtell, Lipton, Rosen, & Katz to help devise a plan that would net GMAC enough capital to qualify as a bank and become eligible for federal bailout money.

Attorneys and financial gurus put their heads together and came up with a complicated debt exchange plan that would give GMAC as much as $38 billion in new capital--more than the $30 billion the Federal Reserve was requiring for the struggling lender to become a bank.

One problem: the bondholders weren't interested, and now GMAC might be on the verge of bankruptcy, Bloomberg reports.

Lawyers and a spokeswoman for Wachtell did not respond to requests for comment or respond to questions about whether Wachtell would represent GMAC in a potential bankruptcy filing. GMAC has lost about $7.9 billion over the last five quarters due in part to subprime mortgage defaults, Bloomberg says.

Still, some experts told the New York Times they believed GMAC's statement about its failure to become a bank was an "act of brinksmanship" designed to push bondholders to participate in the debt exchange.

Bondholders have so far resisted, and a committee has hired Paul, Weiss, Rifkind, Wharton & Garrison partner Andrew Rosenberg to protest the exchange plan. Rosenberg did not immediately respond to requests for comment on why the bondholders oppose the exchange.

GMAC has extended the deadline for bondholders to participate to 5 p.m., Friday, according to SEC filings.

Cerberus Capital Management (the same private equity fund that owns Chrysler) owns 51 percent of GMAC; GM owns the rest.

Experts say it would take between three months and a year for GMAC to restructure if it files for bankruptcy, according to Bloomberg.

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