ResCap Offers To Buy Back Debt at Discount

In an effort to shore up liquidity, Residential Capital, the mortgage-finance arm owned by GMAC, is offering as little at $.80 to exchange or buy back $14 billion of bonds to stave off bankruptcy. The beleaguered mortgage lender will offer cash or notes as part of a tender offer to start next week. ResCap's cash position has been greatly eroded by problems in the housing market that have led to six straight quarterly losses. The company will not be able to meet its current debt obligations so it must attempt to extend the maturity on its debt until 2010 and 2015, when credit market conditions will hopefully improve. The new debt will be senior to the old debt so investors have little choice other than to exchange their bonds at $.80 to receive new ones.
According to the Bloomberg article, ResCap is also seeking a $3.5 billion credit facility from its parent, GMAC, to help finance the restructuring, less than a month after receiving a $750 million credit line. GMAC is getting sucked into the mortgage death spiral at an alarming rate. Will it suck GM down with it? Fitch downgraded ResCap to C from B+. When I was in high school and I did a mediocre job on an assignment, I would get a C from my teacher. What ResCap deserves from the ratings agencies is an F-.