Dec. 15 (Bloomberg) -- GMAC LLC investors holding about $10.5 billion of bonds agreed to sweetened terms of a debt swap, bringing the auto and home lender closer to its goal of becoming a bank and getting a federal bailout.

“The committee has unanimously agreed to support the offer,” said Andrew Rosenberg, partner at Weiss, Rifkind, Wharton & Garrison LLP, in an interview today from his New York office. Rosenberg represents the bondholders, who had balked at the Detroit-based company’s proposed $38 billion debt exchange. The offer was designed to help avert a collapse and pave the way for GMAC to convert to a bank holding company.

The switch could give GMAC access to the Treasury’s $700 billion rescue fund and allow it to sell bonds backed by the government. If the exchange isn’t completed by the end of the year, GMAC said in filing last month there is a “significant risk” it will default on its debt. A bankruptcy by GMAC, the primary lender to General Motors Corp. dealers, may put up to 40 percent of GM’s U.S. dealerships out of business, Martin NeSmith, a member of GM’s National Dealer Council, said last week.

“They’re shut out of the credit markets right now,” said Andrew Harding, chief investment officer for fixed income at Allegiant Asset Management, in a Bloomberg Television interview. Becoming a bank “would bring them back in, and at a very favorable rate. It is a very big step,” said Harding, who manages $20 billion in fixed-income assets from Cleveland.

Deferred Payment

GM is letting GMAC defer a $1.5 billion dealer financing payment until Dec. 30, the automaker said in a filing today. Normally, GMAC pays GM for a car sent to a dealer on the first business day after the vehicle is shipped. As of Dec. 9, GMAC doesn’t have to pay GM until the amount is due from dealers, the filing said.

GMAC’s $4 billion of 8 percent bonds due in 2031 climbed 5 cents to 33 cents on the dollar today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields about 24 percent.

The bondholder group’s decision to tender pushes GMAC closer to its goal of getting 75 percent participation. GMAC said Dec. 12 it revised the terms of its offer, including an improved interest rate and a capital contribution by its owners. GMAC pushed back the early deadline for the exchange to Dec. 16, its fourth extension since announcing the proposal last month.

‘Best Deal’

“It was the best deal that could be achieved that would allow the company to hopefully become a bank holding company, which the committee believes is in the best interest of noteholders,” said Rosenberg, who also got Blackstone Group LP to pay investors almost $225 million more than face value for the bonds of Equity Office Properties Trust in 2007.

Rosenberg said he’s in contact with holders of about $8 billion more of GMAC debt eligible for the exchange and is relaying the committee’s decision. The $38 billion swap includes debt issued by GMAC’s Residential Capital LLC mortgage unit, a subprime lender that analysts have said may go bankrupt.

So far, only about a quarter of the affected debt has been tendered, with holders of $6.8 billion of GMAC notes and $2.4 billion of ResCap securities participating, the company said in the Dec. 12 statement.

“We’re encouraged by the agreement and the participation so far but we still have more to do to reach our target,” said GMAC spokeswoman Gina Proia.

Original Offer

The original proposal, announced Nov. 20, asked holders to swap for as little as 55 cents on the dollar in cash or a combination of new notes and preferred stock that paid a dividend of 5 percent. If the exchange fails, GMAC will come up short of the $30 billion in regulatory capital demanded by the Federal Reserve. Preferred securities count as regulatory capital, so swapping bonds for stock would help GMAC reach its goal.

Amended terms include increasing the annual dividend to 9 percent. The rate will then drop to 7 percent after GMAC raises at least $2 billion of new capital, with $750 million contributed by GMAC’s existing shareholders. That leaves $1.25 billion of capital that needs to be raised. The new accord also restricts liens, subsidiary guarantees and asset sales.

GM, which sold 51 percent of GMAC in 2006 to a group led by private equity firm Cerberus Capital Management LP, is also seeking a federal bailout to avert bankruptcy.

GMAC reported losses of $7.9 billion during the last five quarters, driven by slumping sales at GM and defaults on subprime home loans at ResCap. With auto sales at their lowest since World War II and the U.S. in its worst housing crisis since the Great Depression, GMAC and Minneapolis-based ResCap have little means to revive sales and have been shut out of most credit markets.

Without gaining bank status, GMAC would lose its “last lifeline,” said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, in a Bloomberg Television interview on Dec. 10.

To contact the reporter on this story: Caroline Salas in New York at csalas1@bloomberg.net

Last Updated: December 15, 2008 18:07 EST