GMAC nervously awaits a lifesaving debt swap

DETROIT -- The clock is ticking loud and fast for GMAC.

One minute before midnight Friday is GMAC's deadline for bondholders to swap $38 billion in debt for new bonds that are worth less money — a deal that could help the finance company avert bankruptcy and qualify to become a bank holding company.

Becoming a bank holding company would give GMAC access to financing under the $700 billion government bank rescue fund. The financing company needs about 75% of its bondholders to agree to restructure the debt.

The government has said GMAC must have $30 billion in assets to qualify as a bank holding company. The debt swap is a significant part of the financing arm's attempt to raise that money.

If it fails to meet that target, bankruptcy looms as a real threat for GMAC, which once was General Motors' crown jewel. GMAC has said that failing to become a bank holding company would have dire effects on its business.

Standard & Poor's said earlier this month that failure would mean "the potential for a bankruptcy filing would be high."

However, President Bush's decision last week to use federal financing to help bail out the automakers could be a good sign for GMAC, says Himanshu Patel, an analyst at JPMorgan.

"GMAC will probably be safe, regardless of GMAC's bond-exchange results," Patel said in a recent research note. "We think Treasury will take the needed steps, in the end, to help GMAC remain solvent."

Still, if GMAC were to file for bankruptcy, it could take a wide swath of dealers with it, because many rely on it to provide loans for the vehicles they have sitting on their lots.

Martin NeSmith, a Georgia dealer and member of GM's national dealer council, estimates that a bankruptcy filing by GMAC would drag about 2,000 to 2,500 dealers under. NeSmith says many dealers have remained loyal to GMAC over the years, and without those loans, they'd be unable to find financing at other banks.

"If GMAC goes under, it's going to be really not good for dealers," says NeSmith, who is concerned about his own financing situation. He has floorplan loans — the loans that finance the cars and trucks that sit on dealers' lots until they are sold to customers — only through GMAC. "The government needs to help them in some sort of way."