December 10, 2008 / 2:57 PM / 11 years ago

GMAC's bonds fall after exchange offer fizzles

NEW YORK (Reuters) - GMAC’s bond price fell on Wednesday and its credit insurance costs rose after the finance company said it did not receive enough response to an exchange offer to meet capital requirements to become a bank holding company.

GMAC’S 5.85 percent notes due in January 2009 fell to 89 cents on the dollar, down from 94.125 cents on Tuesday, according to MarketAxess.

GMAC is owned 49 percent by General Motors Corp (GM.N), with the rest owned by private equity firm Cerberus Capital Management.

The cost of insuring GMAC’s debt for five years rose to $5.5 million in an upfront payment for every $10 million insured, up from $5.0 million before the exchange offer news, according to Phoenix Partners Group. The credit default insurance contracts also require $500,000 in annual premiums.

Credit insurance costs also rose for GMAC’s mortgage lending arm Residential Capital. The cost of protecting ResCap’s debt for five years rose to $7 million upfront for every $10 million insured, versus $6.5 million on Tuesday, plus $500,000 in annual premiums.

GMAC said only about 22 percent of its old notes were tendered. The company is extending the exchange offer deadlines but said it will withdraw its application to become a bank holding company if it does not get enough participation.

Only about 21 percent of ResCap’s notes were tendered in its exchange offers, GMAC said.

Reporting by Dena Aubin, Editing by Chizu Nomiyama

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