GMAC'S CDS tightens after exchange offer sweetened

NEW YORK (Reuters) - The cost of protecting GMAC's debt with credit default swaps fell on Monday following news that the finance company has sweetened the terms of a debt exchange crucial to its plans to become a bank holding company.

Five-year credit default swaps on GMAC fell to 48 percent upfront from 53 percent on Friday afternoon, plus 500 basis points in annual premiums, according to data from Phoenix Partners Group. That means it costs $4.8 million a year in an upfront payment to insure $10 million of GMAC's debt, plus $500,000 in annual premiums.

A committee of bondholders that had balked at the debt swap has agreed to the revised offer, but GMAC spokeswoman Gina Proia said the company still does not have the 75 percent of approvals required.

"We were encouraged with the participation to date but we still need additional participation in order to meet that 75 percent," Proia said.

GMAC is trying to swap $38 billion of debt for a smaller amount of debt, preferred stock and cash. The exchange would help it bolster capital so it can become a bank and qualify for capital infusions from the U.S. Treasury Department's $700 billion bank rescue plan.

"They need 75 percent but won't know if they have it till the tenders start coming in," said Andrew Rosenberg, partner with Paul, Weiss, Rifkind, Wharton & Garrison LLP, the law firm representing the bondholders.

The sweetened terms, announced on Friday, include an increase in the annual dividend rate to 9 percent and the addition of covenants on new notes, including restrictions on liens and asset sales. The deadline for the exchange offer, which was set to expire that day, was extended to Dec 26.

GMAC has said that if the debt exchange fails, it will withdraw its application to become a bank and explore other options.

GMAC's bonds also posted sharp gains on Monday. Its 8 percent bonds due in 2031 rose to 33 cents on the dollar, up 5 cents on the day, according to MarketAxess.

(Reporting by Dena Aubin; Editing by Diane Craft)