Auto loan may trigger GM CDS payments: analysts

NEW YORK (Reuters) - A plan to give government loans to ailing automakers, including General Motors Corp, may spark payments in credit default swaps insuring the company's debt, analysts said on Friday.

Separately, contracts insuring the debt of mortgage lender Residential Capital LLC could also be triggered, after parent GMAC LLC said ResCap bonds tendered into a debt exchange may be swapped for an equity stake in a GMAC unit, analyst Tim Backshall of Credit Derivatives Research said.

The government said on Friday it will offer up to $17.4 billion in loans to the ailing U.S. automakers and expects General Motors and Chrysler LLC to access the money immediately.

The loans will be senior to all of the automakers' existing debt.

If the government loan forces other GM debt to be subordinate it effectively rewrites the language of GM's outstanding debt. This may trigger payments under a restructuring clause in the contracts, said Backshall.

Bank of America analysts agree that the seniority of the government loan is key to whether or not GM's CDS are triggered, although they noted it is unclear whether the loan will subordinate other GM debt.

"According to the White House Fact Sheet, 'Debt owed to the government would be senior to other debts, to the extent permitted by law,'" the analysts said in a report. "To us, 'permitted by law' is unclear."

If the government loan is senior to existing debt then CDS payments will need to be made, they said. If the government loan has the same priority as existing debt, however, CDS payments will likely not be triggered, they said.

Around $3 billion in payments on GM would need to be made if the contracts are triggered, based on data by the Depository Trust & Clearing Corp.

Contracts insuring the debt of mortgage lender Residential Capital LLC may also need to be paid out if GMAC succeeds in a debt exchange that is set to expire later on Friday.

The debt for equity swap proposed for ResCap will also constitute a restructuring under terms of the CDS contract, which requires that payments on the swaps are made, said Backshall.

Net payments on ResCap's CDS would likely be in the area of $1.8 billion, based on the Depository Trust data.

(Reporting by Karen Brettell; Editing by Dan Grebler)