Feb. 22 (Bloomberg) -- GMAC LLC, the lender part-owned by General Motors Corp., will prop up Residential Capital LLC with a loan of as much as $750 million while the mortgage unit tries to sell a financing business.

ResCap borrowed $635 million yesterday, the Minneapolis- based company said today in a regulatory filing. GMAC Chief Executive Officer Eric Feldstein has cited the financing operation, which funds development of vacation resorts, as one of the company's best performing businesses.

Pressure on Detroit-based GMAC increased today after Standard & Poor's downgraded its credit ratings and those of the ResCap home-lending unit because of difficulty in funding loans. GMAC, controlled by buyout firm Cerberus Capital Management LP, said Feb. 20 it will shut three-quarters of its North American auto-financing offices this year and cut 930 workers after a $2.3 billion loss last year.

``It's going to be difficult for them to sell anything,'' said Bradley Rubin, a credit analyst at BNP Paribas in New York. ``The appetite to buy real estate assets is limited at best.''

S&P said today that GM and Cerberus support for GMAC ``must be materially less than it was several quarters ago.'' GMAC's counterparty credit rating was cut to B+/C from BB+/B. The rating on ResCap was lowered to B/C from BB+/B, S&P said in a statement

`Extremely Disappointed'

``We're extremely disappointed in Standard & Poor's action today,'' GMAC spokeswoman Gina Proia said in an interview. ``We remain committed to taking the steps needed to improve our business.''

Selling the resort-finance unit could help restore capital at ResCap, which had a $4.3 billion loss in 2007 and ended the year with net worth of $6 billion. That is about $600 million more than the minimum level required by its lenders, S&P analyst John Bartko said in a Bloomberg TV interview.

``We're increasingly concerned about the need for capital support at ResCap,'' he said. ``They've put together a string of rather large losses in the past year and it's very difficult to believe that number is going to reverse itself in the near term.''

ResCap's $684 million of 6.125 percent debt due in November fell about 0.63 cent to 79 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The extra yield, or spread, investors demand to own the debt instead of similar-maturity Treasuries rose about 148 basis points to 4,205 basis points, Trace data show. A basis point is 0.01 percentage point.

Bonds Fall

GMAC's $4 billion of 8 percent bonds due in 2031 fell 0.25 cent to 79.5 cents on the dollar, according to Trace. The debt yields 10.33 percent, or 576 basis points more than Treasuries, Trace data show.

Credit-default swaps tied to ResCap's bonds were unchanged at 36.5 percent upfront and 5 percent a year, according to CMA Datavision. The price means it would cost $3.65 million initially and $500,000 a year to protect $10 million in ResCap debt from default for five years. The contracts imply that the market has priced in an 84 percent chance the company will default in the next five years, according to a JPMorgan Chase & Co. valuation model.

Contracts on GMAC rose 5 basis points to 915 basis points, CMA prices show, meaning it would cost $915,000 a year to protect $10 million in debt for five years. The contracts have soared 178 basis points this year.

Time Shares

GMAC previously disclosed it may sell parts of ResCap, the eighth-largest U.S. home lender, according to the Industry Mortgage Finance newsletter. ResCap's units include the DiTech and Homecomings Financial mortgage lending businesses. It doesn't disclose the finances of its resort finance business, which funds development of time shares and is part of the Business Capital Group division, Proia said.

A time share is a form of joint ownership that for a one- time payment gives buyers the rights to a hotel room, apartment or house for a designated amount of time each year, until they sell it or pass it to their heirs. Some time-share companies allow owners to exchange their units for points which can be used for vacations at other locations.

Time share sales in the U.S. were $10 billion in 2006, a 16 percent increase over 2005, with 8.5 million units sold, according to the American Resort Development Association, an industry lobbying group. There are 176,232 units at 1,615 resorts in the U.S., with 4.4 million owners as of Jan. 1, 2007, the association said.

`The Jewels'

GMAC funds ``some very large developers who have a really good track record,'' said Howard Nusbaum, president of the trade group. ``I'm hearing from our members that time-share paper is performing very well. The overall real estate industry is in the toilet, so we're one of the jewels that really shines.''

Cerberus, based in New York, led a group of investors that bought a 51 percent stake in GMAC from GM in 2006 for $7.4 billion. GM, which retained 49 percent, later injected $1 billion into GMAC to make up for earlier writedowns of mortgage assets at ResCap. GMAC pumped another $1 billion into ResCap in the third quarter of 2007 to help the lender meet minimum net worth limits set by bankers.

``If the credit markets continue to decline and we find ourselves in a prolonged environment of capital market shutdown, GMAC could run into substantial difficulty,'' Cerberus founder Stephen Feinberg wrote in a Jan. 22 letter to the New York-based firm's investors.

ResCap `Challenged'

``There doesn't appear to be a market for anything other than the highest quality assets and this phenomenon is not abating, leaving Residential Capital LLC challenged in terms of generating meaningful operating returns,'' Bartko wrote in the report today.

S&P said its ratings on GM aren't affected by today's downgrade of GMAC. While GMAC's losses are affecting GM's earnings, they don't affect the automaker's ability to raise cash, S&P said. GM had $27.3 billion of cash and marketable securities as of Dec. 31, S&P said.

GM would not receive any immediate distributions from a sale of a ResCap unit, though the automaker could benefit from improved quarterly earnings at GMAC, GM spokeswoman Melisa Tezanos said in an interview.

GMAC's loss last year reflected declining profit from auto lending and record U.S. home foreclosures, which sparked a rise in bad loans and squeezed available credit for consumers.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

Last Updated: February 22, 2008 16:52 EST