Dec. 18 (Bloomberg) -- GMAC LLC, the auto and home lender trying to rescue itself by becoming a bank holding company, scrambled to line up more support for a $38 billion debt swap as some of its biggest investors continued to balk.

Pacific Investment Management Co., which manages the world’s biggest bond fund, failed to tender its holdings, according to people familiar with the negotiations. Pimco earlier agreed to participate along with the rest of a bondholder committee that sought better terms, said the people, who declined to be identified because talks were private.

GMAC remains short of the 75 percent participation needed to help qualify as a bank holding company and obtain federal aid. Holders of $16.9 billion, or 58 percent, of eligible GMAC notes and $3.5 billion, or 38 percent, of securities issued by its Residential Capital LLC mortgage unit had tendered by the end of yesterday, GMAC said in a federal filing today. The deadline for early delivery is tomorrow.

“We’re disappointed with the follow-through participation through yesterday,” said GMAC spokeswoman Gina Proia, in an interview. “However, we’re hopeful we can still achieve the needed participation to meet the capital requirement by Friday.”

Mark Porterfield, spokesman for Pimco in Newport Beach, California, declined to comment.

GMAC, the primary lender to General Motors Corp. dealers, sweetened terms of the debt swap last week and has extended the deadline five times since announcing the deal in November. The exchange is part of Detroit-based GMAC’s plan to cut debt and amass $30 billion in regulatory capital demanded by the Federal Reserve.

Possible Default

If the exchange isn’t completed by the end of the year, there is a “significant risk” the firm will default on its debt, GMAC said in a filing last month. Analysts have said bankruptcy may follow, making loans harder to get for customers and dealers of GM, which is also teetering near bankruptcy and seeking a federal bailout. GMAC finances about 75 percent of GM’s inventory.

The automaker sold 51 percent of GMAC in 2006 to a group led by private equity firm Cerberus Capital Management LP. Cerberus owns automaker Chrysler LLC, whose survival is also in doubt.

GMAC amended the terms of the swap after holders of $10.5 billion of GMAC bonds formed a committee to oppose the exchange and hired Andrew Rosenberg, partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP. GMAC increased the dividend on the preferred stock, made the deal contingent upon its becoming a bank, and added restrictions on liens, subsidiary guarantees and asset sales.

Prices Fall

Rosenberg said Dec. 15 the committee members agreed to tender their bonds. He didn’t return calls today.

GMAC’s $5.5 billion of 6.875 percent notes due in September 2011 fell 6.5 cents to 39 cents on the dollar today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields about 50 percent.

The upfront price on credit-default swaps linked to GMAC bonds climbed 9 percentage points today to 51 percent, according to broker Phoenix Partners Group. That’s in addition to 5 percentage points a year, meaning it would cost $5.1 million initially and $500,000 annually to protect $10 million of GMAC bonds for five years.

Credit swaps are used by investors to hedge against losses or to speculate on a company’s creditworthiness. They typically rise as confidence erodes.

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

Last Updated: December 18, 2008 17:01 EST