Nov. 21 (Bloomberg) -- GMAC LLC, the lender once owned by General Motors Corp., may buy a non-U.S. mortgage company and combine it with Residential Capital LLC, signaling that the subprime lender may avoid bankruptcy.

GMAC made a non-binding expression of interest in the unnamed company and faces competition from other bidders, according to a company statement today. GMAC's new owner, Cerberus Capital Management LP, is among bidders for Northern Rock Plc, the U.K. mortgage lender bailed out by the Bank of England two months ago, the Daily Telegraph has reported.

GMAC has injected $2 billion into ResCap during 2007 as the worst U.S. housing slump in 16 years drove up late payments and led the unit to post a $1.6 billion quarterly loss. An analyst at bond research firm Gimme Credit Publications Inc. said this week ResCap might need to file for bankruptcy.

``They're a major player in the mortgage market and I'd be quite surprised if they just let the business go under,'' said Mirko Mikelic, who helps manage $13 billion in fixed-income assets at Fifth Third Asset Management in Grand Rapids, Michigan. ``They're stating in a pretty solid way: `If you want to price our debt at these distressed levels, we'll buy it back.' It's a smart move if you've got the capital.''

Cerberus spokesman Peter Duda declined to comment, and GMAC spokeswoman Gina Proia declined comment when asked if the unnamed target is Northern Rock. Detroit-based GMAC may decide to sell parts of ResCap, the company said in its statement.

GM's Disavowal

GM gained as much 7 percent in New York trading after GMAC's announcement. GM, which still owns 49 percent of the firm, has ``no further obligation'' to inject capital into GMAC after a $1 billion infusion earlier this year, said Randy Arickx, GM's executive director of investor relations, in an interview today. The stock gained 10 cents to $26.39 in 4 p.m. New York Stock Exchange composite trading.

GMAC also said today that ResCap, the biggest privately held U.S. mortgage lender, is offering to buy up as much as $750 million of its own debt for as little as 50 cents on the dollar.

The repurchase will increase ResCap's fourth-quarter income and net worth, while cutting short-term debt, Proia said. Debt agreements covering ResCap's $3.9 billion in bank loans required the company as of Sept. 30 to maintain a tangible net worth at least $5.4 billion, according to a Nov. 8 regulatory filing. Its net worth on that day was $6.2 billion.

``GMAC is putting out its intention to make sure that ResCap is in compliance with the net worth covenant,'' she said.

ResCap in October said it would cut a quarter of its staff, or 3,000 jobs, in addition to the 2,000 eliminated during the first half of this year.

Rescue Plan

Gimme Credit analyst Kathleen Shanley this week speculated in a report that GM and Cerberus may not rescue ResCap from bankruptcy because of its bad investments in homebuilders and real estate. The Cerberus-led group paid $14.4 billion for its GMAC stake.

Buying the notes would produce ``modestly reduced financial leverage'' at GMAC, Standard & Poor's Corp. analyst John Bartko said in a note today.

``We are comfortable with the company's current liquidity position,'' he said. S&P rates ResCap at BB+, its highest rating for non-investment grade debt.

``Management of GMAC Financial Services currently intends to take steps, to the extent necessary, to cause ResCap to be in compliance with all of the consolidated tangible net worth covenants contained in its credit facilities as of Dec. 31,'' the company said in a statement.

Subprime Lenders

Cerberus owned a majority of Houston-based Aegis Mortgage Corp., a subprime lender that went bankrupt in August. An agreement to buy another subprime lender, H&R Block Inc.'s Option One Mortgage Corp., is also in doubt because of the money-losing unit's deteriorating finances.

Subprime mortgages are given to people with the weakest credit and the highest risk of default. Nationwide, late payments on subprime loans rose to a five-year high in the second quarter, driving down the value of mortgage-backed securities and companies that create such loans and bonds.

More than 100 home lenders have halted operations or sold themselves in 2007 as demand faltered. The fallout toppled more than half a dozen hedge funds and the chief executive officers at three of the world's biggest banks.

Debt Buyback

ResCap, based in Minneapolis, offered 83 cents on the dollar for its $1.25 billion of floating-rate notes due in June. ResCap will also pay 76 cents on the dollar for $500 million of floating-rate notes and $750 million of 6.125 percent notes due in November 2008. The lender is offering 50 cents on the dollar for its subordinated floating-rate notes due in April 2009.

ResCap's $2.5 billion of 6.375 percent notes due in 2010 rose 5 cents to 61 cents at 2:02 p.m. in New York, according to Trace the bond-pricing service of the Financial Industry Regulatory Authority, the main U.S. brokerage watchdog. Regulatory Authority, the main U.S. brokerage watchdog. The extra yield, or spread, investors demand to own the securities instead of similar-maturity Treasuries narrowed to 2,788 basis points from 3,916 basis points, Trace data show.

Bonds that trade at a spread of 1,000 basis points or more are considered ``distressed,'' indicating concern about a default. A basis point is 0.01 percentage point.

HSBC Securities USA Inc. raised its recommendation on ResCap debt to ``overweight'' from ``neutral.''

``Companies that are deeply distressed and about to file for bankruptcy-law proceedings typically do not spend $750 million buying back debt,'' HSBC analyst Van Hesser said in a report. ``We see a clarified commitment from Cerberus to turning ResCap around, not cutting losses and running.''

To contact the reporters on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net; Caroline Salas in New York at csalas1@bloomberg.net

Last Updated: November 21, 2007 16:31 EST