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Opinion

GMAC debt restructuring: Banks hobbled in workout deals

Having negotiated away their covenant protection in the boom years, lenders find themselves in a weak negotiating position in the bust.

GMAC bondholders’ successful negotiation of improved terms on their $38 billion exchange and tender offer is a rare example of creditors being able to flex their muscles in today’s market. GMAC, desperate to achieve bank-holding status by boosting its regulatory capital to $30 billion, originally offered bondholders a split between a cash offer of as little as 55c on the dollar (capped at $2 billion) or new senior notes and 5% preferred GMAC stock.

Holders of its $4 billion existing 2031 notes were offered new subordinated debt of GMAC Bank. When only a little over 20% of GMAC notes were tendered by the original deadline, the offer was amended to 9% preferred stock and a $750 million contribution from GMAC’s existing shareholders (a group led by Cerberus Capital Management). By December 18 roughly 58% of the 75% of GMAC notes needed for the swap had been tendered.

GMAC’s creditors were in an unusually strong position as they were well aware how crucial the conversion of the lender into a bank holding company was to its survival (by enabling it to tap funds from the Troubled Assets Relief Program). But creditors of other distressed corporates are having a rougher time of it.

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