Dec. 10 (Bloomberg) -- GMAC LLC, the auto and home lender, failed to raise enough capital to become a bank holding company and qualify for federal aid, intensifying concern it will seek bankruptcy protection.

The lender’s $38 billion debt exchange didn’t lure enough bondholders, leaving GMAC shy of the $30 billion in regulatory capital demanded by the Federal Reserve for it to become a bank, GMAC said in a statement today. GMAC last month asked bondholders to tender their securities for as little as 55 cents in cash or a combination of new notes and preferred stock, which would count as regulatory capital.

GMAC, the primary lender to General Motors Corp. dealers, is trying to skirt a collapse by becoming a bank and gaining access to the Treasury’s $700 billion rescue fund. As a bank, GMAC would also be able to sell bonds backed by the Federal Deposit Insurance Corp., giving the finance company new funding after being shut out of the public market for bonds backed by auto loans for the past six months.

“Becoming a bank holding company was probably their last lifeline,” said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, in a Bloomberg Television interview. “There’s an extremely high likelihood that they would have to file for bankruptcy” if they can’t get access to the Treasury’s rescue fund by year-end.

If GMAC files, the restructuring will probably take three to 12 months, according to Mikelic.

“This bond exchange is a critical piece to meeting our capital requirements for the bank holding company status,” said Gina Proia, spokeswoman for GMAC. “If we don’t complete the offers and convert to a bank holding company it would have a material adverse effect on the business.”

Proia declined to comment on bankruptcy speculation.

Third Extension

GMAC, which had 26,700 employees as of Dec. 31, 2007, had about $161 billion of unsecured and secured debt as of Sept. 30, according to a filing last month.

The company extended the early delivery deadline for debt holders by three days to 5 p.m. on Dec. 12. It was the third extension of the deadline.

Less than 25 percent of GMAC’s and ResCap’s existing debt covered by the exchange offer has been tendered, the statement said. Detroit-based GMAC needs about 75 percent participation for the plan to work, the statement said. If the goal isn’t met by the end of this week, GMAC intends to withdraw its Fed application.

GMAC applied for a bank holding-company charter on Nov. 20 and must raise $2 billion of new capital and have at least $30 billion in total regulatory capital for the bank conversion, the company said.

GMAC’s Proposal

The lender’s proposal allows debt holders to swap for a combination of new senior bonds with the same interest rate and maturity as their existing debt and new 5 percent perpetual senior preferred stock of a wholly owned subsidiary of GMAC.

The 5 percent dividend on the perpetual preferred stock compares with a 28 percent yield on GMAC’s $4 billion of 8 percent bonds maturing in 2031. The debt fell 1.6 cents to 28.9 cents on the dollar at 3:30 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

“Absent the debt exchange, I’m not optimistic GMAC can survive out of bankruptcy,” said Kathleen Shanley, an analyst at bond research firm Gimme Credit LLC in Chicago.

Capital Access

Last week, Standard & Poor’s said it may downgrade securities issued by GMAC’s New Center Asset Trust commercial- paper unit, which may further jeopardize GMAC’s survival, according to Shanley. Downgrades may make GMAC ineligible to sell paper to the Federal Reserve after gaining access to the new program in October.

“They will likely have to start winding down that operation,” Shanley said. “So that is another source of funding that will be cut off for them.”

By becoming a bank, GMAC would regain access to capital through the FDIC’s Temporary Liquidity Guarantee Program, intended to strengthen confidence in the banking industry. The program guarantees senior unsecured bank debt that is issued through June 30, 2009, and has a maturity of as long as three years. At least 11 institutions, including American Express Co. which won approval to become a commercial bank on Nov. 11, have sold $64.5 billion of the bonds since Nov. 25, according to Bloomberg data.

Dealers’ Concern

General Motors sold 51 percent of GMAC in November 2006 to a group led by Cerberus Capital Management LP, a New York private equity firm, which also owns Chrysler LLC. GM and Chrysler have said they need at least $14 billion in combined aid in a U.S. bailout to keep operating through March 31. GMAC has lost $7.9 billion over the past five quarters as GM sales slumped and home buyers failed to repay subprime mortgages.

“The big concern with dealers is who is giving the marching orders at GMAC,” said Michael Martin, owner of Dudley Martin Chevrolet in Manassas, Virginia. “GMAC says Cerberus isn’t the decision maker, but there obviously is some consternation among dealers about who is pushing the buttons.”

Martin said less than 15 percent of his sales last month were financed through GMAC, compared with about 50 percent historically. He said his separate Saturn dealership had one sale financed by GMAC, which he said has tightened lending terms in recent months.

Opposition Group

Within a week after GMAC announced the debt exchange, a group of bondholders hired Andrew Rosenberg, a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP, to represent them in opposing the offer. Rosenberg got Blackstone Group LP to pay investors almost $225 million more than face value for the bonds of Equity Office Properties Trust in 2007.

The steering committee for the bondholder group holds $10 billion of GMAC notes and is holding a call today to discuss the results of the exchange and next steps, Rosenberg said in an interview. Rosenberg said he’s also in contact with other holders of up to $8 billion of GMAC notes.

GMAC already amended the terms of its offer to make the exchange conditional upon becoming a bank after the group formed. Rosenberg declined to specify what additional changes the group is seeking in order to tender.

Owners of $6.3 billion of GMAC notes and $2 billion of ResCap notes have agreed to the exchange.

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: December 10, 2008 16:35 EST